Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Gundlach is definitely the lone wolf here. While I hope he is right because low rates have been a boon to investors (in both stocks and bonds) the past many years, I just don't see it. Especially if equities and the economy keep improving. While Treasuries had backed down from 2% to 1.86%, the past few days have not been kind as they are back up to 1.98%. Tomorrow's employment numbers could be telling on many fronts, including his prediction. I have never been a Gundlach groupie, but admire his contrarian nature here.
Isn't this same fella that was screamin "Sell Bonds. Buy anything else." couple months ago? I sense rates have spiked enough to represent an attractive trading or hedging vehicle for the pros. As long term investments still don't like.
I do indeed hope he's correct about stuff. I own his DLFNX, but it's a small position--- just 2.56% of my portfolio. I like the monthly dividends, but it lately feels like the Treadmill to Nowhere, with the share price falling slowly, ever so gradually. It is off its highs and now just holding its own, more or less---at this lower level. But with the monthlies, I'm still ahead of the game--- barely.
While everyone loves to hate treasuries the one thing that people should think about is why would investors dramatically sell off 10 Treasury bonds at 2.01% before they sold off 10 year JGBs at 0.64%?? Why does Japan get money at 1/3 the rate when it has twice the debt load, is not the world's reserve currency, has a population which is shrinking and are 10 years older needing to sell their holdings to fund retirement?
Reply to @clacy: Yep. The BOJ will buy bonds. Whether or not Japanese citizens will continue to buy as much as they have (due to demographics and other factors) I dunno, but maybe they will. If they don't, the BOJ will. How doing that ends well - especially with Japan's situation - I don't know, either.
As for demographics, I considered buying a Singapore REIT called Parkway Life. Heathcare REIT with a lot of Japanese exposure. I figured it made sense demographically, but didn't do it. Oops. Should've.
Treasuries have really taken it on the chin this week now at 2.07%. And non local currency emerging market bonds haven't fared much better recently with many negative YTD. The top bond funds this year are almost all of the junk nature. I don't like junk but may have to roll some of my bond allocation out of PONDX into WHIYX because junk is now following stocks, instead of the other way around.
But I guess the question is how is that different from what the Fed will (and is) doing now here in the US? How come Japan has some magical ability to keep rates low but we wouldn't have the same ability? And Japanese citizens are ALREADY loaded to the gills with JGBs and they are 10 years more advanced in the distribution phase then here in the US......that is not a recipe for increased demand from citizens.
Just shooting in the dark here, but my impression is Japan has undergone 1-2 decades of actual deflation. (I'd imagine they find it just as hard to measure deflation as we do inflation with our various tools & indicators.) So ... a JG bond yielding ANYTHING - even 0% - has increased the owner's purchasing power over the period owned. By contrast, while the U.S. has flirted with deflation - primarily due to the housing crash - I don't believe we've actually experienced it in a measurable & sustained way as they have. Therefore our bonds have to yield more if they're going to do anything to preserve purchasing power. The differing interest rate environment is actually linked to the actual rate of inflation (or deflation as case may be).
Interestingly, Japan's central bank - under prodding from politicians - is actively working to induce inflation through highly stimulative monetary policy and they've announced some very aggressive inflation targets. Can you imagine the uproar here were Ben Bernanke to publicly announce that the Fed was seeking to boost our rate of inflation by "X" percentage points over the next "X" number of years?
None of this is intended to contradict the other fine points in the thread. (And perhaps my explanation attributes more logic to bond market participants than they deserve:-) FWIW
Comments
I sense rates have spiked enough to represent an attractive trading or hedging vehicle for the pros. As long term investments still don't like.
The Wall Street Ranter
The BOJ will buy bonds to keep rates low. The Japanese citizens will buy bonds because they have endured a couple of decades of deflation recently.
It's out of necessity, not because their debt is looked at more favorably.
As for demographics, I considered buying a Singapore REIT called Parkway Life. Heathcare REIT with a lot of Japanese exposure. I figured it made sense demographically, but didn't do it. Oops. Should've.
But I guess the question is how is that different from what the Fed will (and is) doing now here in the US? How come Japan has some magical ability to keep rates low but we wouldn't have the same ability? And Japanese citizens are ALREADY loaded to the gills with JGBs and they are 10 years more advanced in the distribution phase then here in the US......that is not a recipe for increased demand from citizens.
Interestingly, Japan's central bank - under prodding from politicians - is actively working to induce inflation through highly stimulative monetary policy and they've announced some very aggressive inflation targets. Can you imagine the uproar here were Ben Bernanke to publicly announce that the Fed was seeking to boost our rate of inflation by "X" percentage points over the next "X" number of years?
None of this is intended to contradict the other fine points in the thread. (And perhaps my explanation attributes more logic to bond market participants than they deserve:-) FWIW