Jeff Gundlach discussed his well publicised call on U.S. Treasury bonds with CNBC’s Sara Eisen on Monday.
Gundlach famously took the contrarian view that Treasury yields would fall in 2014, a view that pretty much went against all of Wall Street but ultimately turned out to be correct.
To see a list of high yielding CDs go here.
After starting the year at 3% 10-year yields have steadily fallen, going as low as 1.86% during the wild morning of October 15 that marked the stock market’s most recent bottom.
Fast forward to the fall of 2014 and Gundlach told Eisen that. “Treasuries are still slightly cheap,” despite 10-year and 30-year bond yields having fallen significantly during 2014.
Gundlach reiterated his view to Eisen that 2.2% remains a “line in the sand” for the 10-year yield, and said that discounting that wild morning of October 15, that level has just about held this year.
On Monday, the 10-year yield was about 2.32%.
Reflecting on his contrarian call that U.S. Treasury yields would fall, not rise, during 2014, Gundlach said, “Treasuries being overvalued was a strange opinion to have. By our work, at the start of the year Treasuries were the cheapest bond sector, and today they are still slightly cheap.”
Gundlach singled out the value of Treasuries against corporate and municipal bonds in particular.
Todays Other Top Stories
Learn Bonds: – Treasuries are biggest losing bonds. – For the past month, Treasuries were the poorest performing developed market bonds, delivering gains to investors internationally based only on a dollar rally.
4 Traders: – Legg Mason: Value opportunities in today’s municipal bond markets can be unearthed with research. – Over the past year, municipal bond markets have experienced resurgences that have made them increasingly attractive to a broad range of investors. Yet, municipal fixed-income bonds can be complex, and analyzing and finding value among the many securities available can challenge even experienced financial managers.
Bloomberg: – Muni supply set to shrink as sales decline accelerates. – The U.S. municipal bond market is poised to contract in the next month as the schedule of new sales shrinks more than the pace of redemptions and maturing debt.
Bloomberg: – Revel without a buyer leaves Atlantic City energy munis at risk. – About $119 million of municipal debt for a power plant serving the shuttered Revel Casino in Atlantic City may be approaching default after Brookfield Property Partners LP (BPY-U) dropped a plan to buy the resort.
ValueWalk: – Bonds and the Fed: Lagging long yields. – This post stems from an investigation into the question over whether yield curves move in parallel shifts or not, thus justifying traditional duration [bond price interest-rate sensitivity] statistics or not.
Businessweek: – Forget bond dealers: Trading among investors may be norm. – Credit investors probably don’t need Wall Street as much as they think they do. They just need a better way to find each other.
Bloomberg: – Liquidity drains out of the bond market. – Liquidity is draining out of the world’s bond markets because securities are being held by a shrinking number of fund managers and banks are cutting back on trading, according to the Bank for International Settlements.
Business Insider: – How stocks and junk bonds went their separate ways. – Until the last few months, U.S. high-yield bonds had been one of the best-performing asset classes in the global fixed income markets.
Brian Gilmartin: – Bond market update: Municipals outperformed corporates handily in 2014. – We’ve had a tougher year in our balanced and fixed income accounts, mainly because like the 99% of the other money managers in the universe of money management, we thought interest rates would rise again this year, (sentiment should have been a huge tell at this time last year) and they didn’t.
Bloomberg: – The $400 billion bond mismatch keeping bears at bay endures. – Even in the $100 trillion market for bonds worldwide, one of the most persistent dilemmas facing potential buyers is a dearth of supply.
Business Insider: – ‘When all of a sudden the most liquid market out there isn’t liquid, it’s worrisome’. – US fund firms are taking extra measures to make sure they don’t get stuck holding hard-to-sell bonds in the event that fixed income markets see a massive race to the exits when interest rates start to rise.
The Hornet: – Speculators’ net bearish bets on U.S. 10 year Treasury note. – Speculative U.S. 10-year T-note futures net shorts highest since May-CFTC.Nov 21 (Reuters) – Speculators’ net bearish bets on U.S. 10-year Treasury note futures rose for a third week to their highest since May, according to Commodity Futures Trading Commission data released on Friday.
WSJ: – Government Bonds in U.S., Europe strengthen on China, ECB. – (Subscription) Prices of government bonds in the U.S. and Europe strengthened on Friday as bond investors cheered the latest signals from central banks in China and the eurozone to support the flagging economic growth.
WSJ: – Corporate Bonds: Not so brave in the new world. – (Subscription) The bond-market sands are starting to shift. That is particularly true in the U.S., where investment-grade corporate bonds, one of the long-standing beneficiaries of the financial crisis, have started to come under pressure. The gap between U.S. corporate bond yields and U.S. Treasuries now stands close to its widest this year, around 1.24 percentage points, according to Barclays indexes. Year-to-date returns have faded from above 8% in mid-October to closer to 6%.
High Yield Bonds
Zero Hedge: – The levered canary in the coalmine: High yield is flashing a “sell signal”, says Barclays. – The growing divergence between equity and credit markets this year have seldom been far from our pages, and now it appears Barclays also recognizes this fact. As they note, in 2007, as hints of the financial crisis were unveiled, spreads in the high yield market increased sharply. Meanwhile, the equity market climbed to a new record high.
St Louis Post: – Is it time to dump the junk? – Junk bonds are looking trashy. High-yield bond funds have lost 1.6 percent over the past three months, although they’re still up 2.8 percent for the year, according to Morningstar.
ETF Trends: – Tread carefully with junk bond ETF apathy. – Perhaps as long as China is cutting rates and Europe is buying asset-backed securities – and as long as the U.S. maintains its policy of zero percent interest rates – investors can ignore traditional risk in stock assets. Then again, contrarian assessments suggest that participants are closing in on euphoric extremes and credit spreads are beginning to widen again.
Market Realist: – Credit spreads are narrowing: Should you buy high yield bonds? – With high yield spreads historically tight and prices close to all-time highs, some market watchers are wondering whether it’s time to jump off the high-yield bandwagon. Russ weighs in and explains why this asset class is still worth holding.
Bloomberg: – Are junk bonds a market warning for higher rates? – Bloomberg’s Lisa Abramowicz and Matt Miller examine the decline in high yield bonds and what that may represent for other asset classes. They speak in “On The Markets” on “In The Loop.”
Income Investing: – Energy sector continues to hurt junk bonds. – The falling price of oil and broad-based weakness among energy companies continues to weigh on the high-yield bond market. Junk bonds broadly fell by 0.9% last week, with the energy sector again serving as an anchor, as it registered a 1.7% decline in the week, according to a benchmark Bank of America Merrill Lynch index.
Emerging Markets Daily: – China fuels emerging markets rally: The week in review. – China pulled a lever Friday, and it made emerging markets investors quite happy.
BlackRock: – What is driving emerging market bonds? – Monetary policy of the U.S. Federal Reserve, European and Japanese central banks will be the most important drivers of EM debt returns over the next six months. EM fundamentals remain challenged in the new year but local country factors won’t impede the global search for yield. Next year’s debt returns will come from opportunities brought by differentiation between assets and countries.
Oregon Live: – What to do with PIMCO Total Return in your 401(k). – You may have heard of Bill Gross. He’s an investment rock star, the Bruce Springsteen of the bond world. Just about every other 401(k)-type plan in America had a bond fund he managed in its lineup – PIMCO’s Total Return fund.
Real Money: – Rules of the game: Get your claws in bonds. – Only the youngest and most aggressive investors can get away without bonds in their portfolios. For everyone else, bonds are essential, as they provide a way to dampen stock-market volatility.
Wall St Sector Selector: – Retirement investors are finding new available alternatives for investing in corporate bond ETFs. – Retirement investors keep a certain percentage of their portfolio invested in bonds. As one approaches retirement age, allocation toward fixed-income investments – with an emphasis on Treasury bonds – becomes increased, in accordance with conventional wisdom. Until recently, ETF investors have been limited in their choices of bond-based investments.
ETF Trends: – A bond ETF to diminish volatility and boost yields. – Convertible bond exchange traded funds are a good way to reduce volatility in a fixed-income investment portfolio and generate some extra cash on the side.
AAA-rated US corporate bonds (9% annualized) outperforming CCC-rated bonds (2%)…“flight to quality” theme of 2014 via BAML
— Chris (@lebullmarche) November 24, 2014
1yr change in the 2yr UST yield: +25bps, change in the 30yr yield: -85ps…
— David Schawel (@DavidSchawel) November 24, 2014
Vanguard files for ultra-short bond fund, to be available first quarter of 2015.
— John Waggoner (@JohnWaggoner) November 24, 2014
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