Bond guru Jeff Gundlach is paying close attention to some “big levels” in the US 10-year and 30-year yields. In a tweet fired out late Friday, Gundlach said: “Big levels nearby for 10/30 US Tsys. Closes above 2.42 /2.95, respectively, flash bearish. Best news is sell-off stall of 2 yr. Levels hold?”
The 10-year yield touched a high of 2.39% late last week while the 30-year ticked above 2.94%.
The US Treasury market has come under significant pressure over the past year. The benchmark 10-year yield bottomed at a record low near 1.36% in July 2016. At the time, Gundlach predicted that the yield would climb back above 2%. And that it did.
The 10-year yield rallied by more than 120 basis points to a high above 2.60% over the next five months on the hopes that Donald Trump’s plans to cut taxes and spend massively on infrastructure would bring back inflation to the US, and as the Federal Reserve continued to lift interest rates off the zero bound.
Recently, yields at the long end have struggled to move higher. Trump’s agenda has stalled in Congress. He has been unable to broker an agreement on new healthcare legislation, deliver on tax cuts, or progress toward infrastructure spending. Additionally, Fed rate hikes have continued to lift the front end of the curve. The two-year holds at 1.38%, near its highest level since 2009.
Gundlach recently predicted the 10-year yield would “move toward 3%.” In an emailed statement sent to Bloomberg on Thursday, Gundlach said a 10-year at 3% would put Treasurys in a “definitive” bear market. He previously said in December, “Also, a 10-year Treasury above 3% in my view starts to bring into question some of the aspects of the stock market and of the housing market in particular.”
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