To Top

Investors Betting Against The US Treasury

Self-Sabotage: An Upcoming Issue For Investors Betting Against The US Treasury?

The DoubleLine Funds founder, Jeffrey Gundlach, believes that investors could soon be facing substantially poor outcome as a result of investors betting against the US Treasury.

On Friday, Gundlach chose to use Twitter as his personal warning system.

The tweet stated: “Massive increase this week in short positions in 10 & 30 yr UST markets. Highest for both in history, by far, could cause quite a squeeze”

For the first time since 2014, the April data states that the 10-year yield had capped at 3%. As of Monday, the numbers have decreased slightly, sitting at 2.842%.

These totals are actually an increase of 44 basis points since the new year had begun.

Once plotted on the yield curve, the data shows that the variations between short and long-term bonds are resting at their smallest point since the financial crisis. It is highly typical for the yield to become negative as it has prior to every recession since the 60’s.

Given the numbers’ decent towards zero, the topic itself has been the subject of many debates within the market.

However, the Treasurys yields could plummet more quickly if the trends in the yields reverse themselves. Forcing the Treasurys to close out their current positions.

Earlier this month, the Federal Reserve held a policy meeting based on the fluctuation of the Treasury yields. A portion of these minutes will be released on Wednesday. Later in the week, more specifically Friday, a speech will take place at the Jackson Hole Symposium. This speech will feature Federal Chairman Jerome Powell as the head speaker.

Matthew Hornbach, a strategist on the opposite side of the short trade made a statement on Friday; “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”

Although other countries were tightening their policies, the Japanese Central Bank has agreed to entertain their monetary policy.

In turn, this caused the 10-year yield to return to 3% on August 1st.

Hornbach finalized his statement by saying; “The ensuing rally should mark the end of the cyclical bear market that began in late 2017. We still suggest long UST 10y and UKT 10y positions.”

Will investors be in for pain if Treasurys, in fact, rally?

You must be logged in to post a comment Login

More in Finance

Investors Betting Against The US Treasury

by Sonia Landry time to read: 2 min