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Bonds Are Right! DoubleLine's Gundlach Warns Fed "Has Been Wrong For So Long... Offers No Value"

History is on the market’s side, says DoubleLine's Jeff Gundlach, noting the Fed’s forecast for how much benchmark rates will rise is still too high, even after central bankers lowered their estimates last month. BlackRock’s Jeffrey Rosenberg says the bond market’s too complacent and is poised for a correction, claiming The Fed has "a tremendous ability" to send bond yields higher. But as Bloomberg reports, "if the burden of proof is on anybody, it’s on the Fed," and for now, as Gundlach exclaims, The Fed has "been wrong for so long," that their forecasts have been literally of no value, "the market’s pricing has been closer."

 

 

Despite policy-makers including New York Fed President William C. Dudley suggesting there’s something wrong with debt yields that aren’t climbing as the economy recovers, Bloomberg reports traders are signaling there’s little reason long-term Treasury yields can’t, and won’t, stay depressed...

Perhaps the bond market’s most important message is that the Fed’s own forecast for how much benchmark rates will rise is still too high, even after central bankers lowered their estimates last month. The market is calling for 2 percent rates in 2018, almost half what the Fed sees.

 

The Fed has “been wrong for so long,” said Jeffrey Gundlach, founder of Los Angeles-based DoubleLine Capital, which oversees $73 billion in assets. “Their incremental input in what will happen in the future has been literally of no value, because the market’s pricing has been closer.”

But not everyone agrees with Gundlach...

BlackRock Inc.’s Jeffrey Rosenberg says the bond market’s too complacent and is poised for a correction. Treasuries gained for the fifth straight quarter ending last month, the longest streak since 1998.

 

The Fed has “a tremendous ability” to send bond yields higher, particularly after debt purchases ballooned its balance sheet to a record $4.5 trillion, said Rosenberg, chief fixed-income strategist for the world’s biggest asset manager.

 

“We don’t think the Fed needs to worry about a conundrum 2.0,” he said.

The dilemma is reminiscent of the so-called “Greenspan conundrum” of 2004, when long-term yields kept falling even as then-Fed Chairman Alan Greenspan ratcheted up borrowing costs more than 4 percentage points. The market thwarted his attempts to tighten credit and curb excesses that contributed to the worst financial crisis in 80 years.

“If the burden of proof is on anybody, it’s on the Fed,” said Stewart Taylor, a Boston-based money manager at Eaton Vance Management, which oversees $86 billion in debt.

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