Billionaire hedge fund legend Paul Tudor Jones says to 'steer very clear of bonds'

Bennett Raglin/WireImage/Getty ImagesPaul Tudor Jones.

  • Paul Tudor Jones has doubled down on his warnings of impending doom in the bond market.
  • I would steer very clear of bonds,” he said in an interview with Goldman Sachs.
  • Jones predicts the 10-year could reach 3.75% this year. It recently hit a four-year high of 2.95%.

Paul Tudor Jones, the billionaire founder of hedge fund Tudor Investment Corporation, is doubling down on his warnings of an impending financial bubble.

“With rates so low, you can’t trust asset prices today,” he said in an interview with Goldman Sachs sent to clients Wednesday. “And if you can’t tell by now, I would steer very clear of bonds.”

Jones predicts the 10-year yield will rise to 3.75% by the end of 2018, even adding that he believes that’s a “conservative” target.

Treasury yields have risen sharply since the beginning of 2018, from 2.46% to a four year high of 2.95% on February 21, amid anticipation inflation is going to pick up and the Fed will continue to hike rates, possibly as many as four times this year.

“Bonds are the most expensive they have ever been by virtually any metric,” he said. “They’re overvalued and over-owned. Valuations haven’t been that relevant in recent years because of central bank manipulation outside of the US, but with the Fed in motion and the US economy in fifth gear, they start to matter a lot. I believe we’re at that critical threshold right now.”

Jones’ warnings come just weeks after he voiced similar fears in a letter to investors of his $US7 billion hedge fund.

“‘Cry ‘Havoc!’, and let slip the dogs of war’ seems an apt description for this moment,” he wrote last month, quoting Shakespeare. At that point in the Julius Caesar play, Mark Anthony is predicting war in the aftermath of Caesar’s murder.

Luckily, a slowdown in the bond market might remain isolated from equities at large, Jones says.

While history suggests that equities can perform well in bond bear markets if growth is strong, bonds are still likely to become a bigger drag on portfolio returns, and less of an effective hedge against equity drawdowns.”

Tudor’s flagship fund, which runs a macro strategy, gained 4.8% in January, Business Insider’s Rachael Levy reported in February. More recent figures were not available. Last year, the flagship fund fell by 2.2%.

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