Treasury Yields Top Gundlach’s ‘Critical Level’

"There you have it. U.S. ten year closes twice over 2.32%, and Bunds spike above 0.50%. Remember the 'yields can never rise mantra' one year ago?" DoubleLine Capital CEO Jeffrey Gundlach said on Twitter on Thursday.

Last week, the fixed income portfolio manager tweeted: "US 10-year yield above 200-day moving average, broke downtrendline from March. Critical level now 2.32%, probably coincides with 0.50% Bund."

He also used Twitter to comment:

Two year US Treasury yield at an EIGHT YEAR high, AND above the 1Q 2008 rally pivot point. Very hard to find a bull case for that puppy!
— Jeffrey Gundlach (@TruthGundlach) June 30, 2017

U.S. Treasuries weakened on Thursday, along with European government bonds, due to weak demand for French debt, according to Bloomberg news. This contributed to lower equity prices. Plus, the U.S. dollar fell after an ADP report showed private employers hiring fewer workers than expected in June.

As of midday, the yield on 10-year Treasury notes had ticked up to 2.39% on Thursday, a jump of more than 25 basis points for the past nine trading days.

Meanwhile, the benchmark German bund yield rose to its highest level since January 2016.

Trouble Ahead?

Ten-year Treasury yields are likely to head "toward 3%" this year, Gundlach told Bloomberg via email. The bond king stressed an earlier view that there is "no justification for the divergent policies in the U.S. versus Europe given economic fundamentals."

If the 10-year Treasury's yield hits 3%, this would represent a "definitive" bear market, the DoubleLine executive said to the news service.

Last month, Gundlach said during a webinar that the lengthy low-risk, low-volatility U.S. financial environment should not be viewed as a "new paradigm."

"We're on increasing watch for volatility," he said, noting the "massive amount of money" that has made a short bet on the VIX volatility index.

"It's a trade that's made a lot of money, and it's very very crowded, which suggests to me the days of low volatility are numbered," he said.

In a podcast recorded on June 1 and posted Wednesday by DoubleLine, Gundlach said he believes government spending is "too high," interest rates are "low," and that volatility is "too low."

Also, in another tweet on the bond industry, the fixed-income specialist thanked Bill Gross, the PIMCO founder who is now with Janus Henderson, for a tribute made at a recent Fixed Income Analysts Society Inc. event:

Thanks Bill Gross for the tribute relayed last night at FIASI. Bill built a great company. It turned on him in a shameless and ugly fashion.
— Jeffrey Gundlach (@TruthGundlach) June 24, 2017