“What kind of fool would bet on LOWER interest rates?”
I asked that question a week ago here in DailyWealth.
The answer was, “ME… And nobody else.”
Or so I thought…
But Jeff Gundlach – nicknamed the “Bond God” because of his prescient bond market forecasts – has joined me…
Gundlach manages more than $100 billion through his investment firm, DoubleLine Capital. This week, he updated his investors on his thoughts for the rest of the year.
His comments about long-term interest rates were particularly important.
For context, the benchmark long-term bond is the 10-year U.S. government bond. It peaked this year at an interest rate above 2.6%, and is currently below 2.4%.
“I expect a rally on the 10-year,” Gundlach said. A “rally” means higher bond prices – and therefore, lower interest rates.
How low can interest rates fall? Gundlach predicts they will fall “to below 2.25%, at a minimum… maybe a bit lower than 2%.” He added that he expects rates to move back up after that point.
How high could the benchmark Treasury bond go in 2017? “I don’t think we’re going to see 3% on the 10-year this year,” he said.
I explained why interest rates could fall in my essay
last week – nobody believed long-term rates could fall while the Fed was raising short-term interest rates. Bets reached a record high on this idea. I said they were all wrong. And based on Gundlach’s webcast, he agrees. We’ve been right so far.
Gundlach added another important reason why U.S. long-term rates could come down…
Interest rates in the U.S. are dramatically higher than they are in the rest of the developed world. For example, comparable 10-year bonds in Germany and Japan pay next to nothing in interest – 0.25% or less. So international investors have huge incentives to take their money out of their low-yielding government bonds and move it into U.S. bonds.
Are you ready for long-term U.S. interest rates to be less than 2%?
You ought to be prepared for the possibility. The world’s best bond investor says it could happen… And I wouldn’t bet against him…
Good investing,
Steve
Source:
http://www.stansberryresearch.com/dailywealth/3512/-bond-god-sees-long-term-rates-below-2-
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