INSUBCONTINENT EXCLUSIVE:
Investors who are betting against US Treasurys could be setting themselves up for massive losses ahead, according to Jeff Gundlach.
The
DoubleLine Funds founder and fixed-income maven sent a warning via Twitter on Friday after data from the Commodity Futures Trading
Commission showed hedge funds had piled on record bets against 10- and 30-year Treasurys.
Speculators have been on the right side of the
In late April, the 10-year yield, which rises when the underlying note’s price falls, topped 3% for the first time since 2014
It has since retreated and was at 2.842% on Monday, up about 44 basis points from the beginning of the year.
The drop in yields this year
has shrunk the difference between short- and long-term bonds — plotted on the yield curve — to the smallest since the financial crisis
It has turned negative before every recession since the 1960s, and so its approach toward zero has been the subject of much debate in
markets.
If the trend in yields reverses, however, hedge funds could face a so-called short squeeze as they’re forced to close out their
positions, pushing Treasury yields downward even faster.
There are market-moving events just ahead this week that could test hedge funds’
conviction against Treasurys
On Wednesday, the Federal Reserve will release minutes of the policy meeting it held earlier this month
And on Friday, Fed Chairman Jerome Powell is scheduled to speak on monetary policy at the Jackson Hole symposium, an annual meeting of
central bankers.
One strategist on the other side of the popular short trade is Matthew Hornbach, Morgan Stanley’s global head of
interest-rate strategy.
“Government bonds are mounting a second attempt this year at a tactical bull market, the first of which was ended
prematurely by Bank of Japan policy,” Hornbach said in a note Friday
Treasurys sold off and the 10-year yield topped 3% again on August 1 after the Japanese central bank indicated it was willing to prolong its
accommodative monetary policy even though other countries were tightening.
“The ensuing rally should mark the end of the cyclical bear
market that began in late 2017,” Hornbach said
“We still suggest long UST 10y and UKT 10y positions.”
