Fed Tightens, ‘and so far, Nothing Has Blown Up’

Gundlach frets about bonds during QE unwind, rate hikes, tax cuts, and rising deficits. ‘A tax cut will reduce revenue and it will grow the deficit and therefore, it will probably grow bond supply, and perhaps boost economic growth,’ DoubleLine Capital CEO Jeffrey Gundlach said on an investor webcast on Tuesday. And if it does, ‘it is going to be bond unfriendly.’
And possibly in a big way.
It’s a ‘strange environment’ for cutting corporate taxes as the economy is already in its eighth year of expansion, he said, according to Reuters, which reported the webcast. He reiterated his prediction that the 10-year Treasury yield could reach 6% over the next ‘four years or so.’
Let that sink in for a moment. The last time the 10-year Treasury yield was at 6% (on the way down) was in August 2000! Four years from now, 6% would be a two-decade high-water mark.

This post was published at Wolf Street on Dec 5, 2017.

 

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