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Jason Brady at Thornburg Investment Mgmt recently bought Treasuries as yields approached a 2-yr high of 3 percent. Brady said every single strategist decided towards the end of 2013 that stocks were the best thing in the world and bonds were the worst thing in the world and that rates were certainly going higher and anybody who was otherwise is crazy. Brady said the outlook is so dire that the Fed may need to reverse course and add more stimulus, benefiting bonds.
The performance of Treasuries is confounding forecasters who predicted a second consecutive year of losses with their best annual start since 2008, returning 1.6 percent in January.
Jeffrey Gundlach at DoubleLine Capital said the market entered 2014 with a greater consensus than any year that I can remember; that the dollar has to do well, gold is for losers and bond yields will rise. Gundlach predicts yields will fall in 2014, with demand rising from investors such as banks seeking high-quality collateral to meet new regulatory requirements and as a haven for others from political and economic turbulence in nations ranging from Turkey to Argentina.
The bets against 10-yr Treasuries by hedge-funds et al declined to as low as 58,000 contracts in January from a 19-month high of about 189,000 in November.
Strategists and economists have largely stopped boosting their estimates for how high yields will get in 2014 – at year-end at 3.42 percent since November.
Thomas Graff at Brown Advisory said the possibility of 10-yr yields moving a lot higher was predicated on an out-of-consensus economic scenario, and yet the consensus was for rates to move a lot higher. Graff favors government debt over credit-related assets such as corporate bonds for the first time since 2009.
David Rosenberg at Gluskin Sheff said the economy is on a moderate accelerating trend and the yield decline is temporary: yields will reverse and end the year at 3.5 percent to 3.75 percent as the economy improves. Rosenberg said we are coming out of a flight to quality on emerging markets, and that this is a blip rather than a long-term trend.
US yields are still higher relative to bonds from other major global economies, making them attractive on a relative basis: the extra yield over similar maturity German bunds reached 1.11 percent on Jan. 22, the most since July 2006 based on closing prices.
Vimal Gor at BT Investment Mgmt said on a cross-market basis, Treasuries are by far the best market and is betting on gains in 5-yr US Treasuries.
Fixed-income assets returned 1.57 percent in January, the best start to a year since at least 1997.
Sean Simko at SEI Investments said exogenous events and hiccups could continue, as in the debt ceiling, and investors remember what we just went through and uncertainty creates nervousness in the marketplace. Simko expects a slow and gradual move in yields.
James Camp at Eagle Asset Mgmt said he was a buyer at 3 percent as Treasuries are back as a safe haven.
Read the full article at http://www.bloomberg.com/news/2014-02-03/gundlach-shows-why-betting-against-treasuries-a-fool-s-game-3-.html
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