David Rosenberg Warns “The 35-Year-Old Bond Bull Market Is Not Over”

“I don’t buy it at all” exclaims Gluskin Sheff’s David Rosenberg in a recent interview with MacroVoices.com, “look all I’ll say is that in 2009, 2010 when the Fed embarked on QE, along with 0% interest rates every Tom, Dick and Harry portfolio manager and bond market pundit out there was screaming about the end of the secular bull market in bonds,” and they were all wrong.

Submitted by Patrick Ceresna via Macrovoices.com,

  • Bill Gross recently said if we cross above 2.6% based on the thickness of this pencil that marks the end of the bull market, I don’t look at it that way. I look at it that when you take a look at a 10 year note or you look at the long bond for that matter in each cycle the highs in yield are getting lower and the lows are getting lower. The highs are getting lower and the lows are getting lower. And so, we have to wait and see how far this thing goes. I would think that to really call for the secular bull market to be over I think we have to cross well over 4% and we’re not gonna get anywhere close to that in my opinion.
  • This is about the 8th time we had a backup of this magnitude in the past decade. They come and they go. I just think that there’s still too many powerful sector of forces at play. Global competitive pressures, aging demographics in the industrialized world. And we just have too much debt globally to withstand rises in the market rates much more than we already have done.
  • You just start to wonder what happens when things start to unravel because there will be recession at some point. I’ll say this right now it’s a guarantee that we’ll have recession at some point because the business cycle is not dead, we can debate as to what year that happens but here’s what we know, we know that bond yields make new lows in recessions and we know that there’s gonna be recession at some point and the most you can do right now at the peak of the cycle is 2.60% on the 10-year note really tell you something. So no, I’m not really buying in. Notwithstanding the fact that bond yields are trading higher that could happen again for the next several months, it wouldn’t surprise me, will it be sustained? And my answer is an emphatic no.

Excerpts:

Erik:       I’m personally convinced that the 64 trillion-dollar question for 2017 is whether or not the 35-year bond bull market really is over the way Jeff Gundlach has suggested? Gundlach like he said we’re headed back to 6 percent yields and personally I can’t figure out how you get back to 6 percent 10 year yields without the US government going broke trying to service its debt. So, what do you see for the bond market? Do you buy the story that the secular bull market could be over in bonds and if so what does that mean in terms of what’s next?

Dave:    I don’t buy it at all and look all I’ll say is that in 2009, 2010 when the Fed embarked on QE, along with 0% interest rates every Tom, Dick and Harry portfolio manager and bond market pundit out there was screaming about the end of the secular bull market in bonds. This is just basically, I mean you’re going back 6 or 7 years. I remember my former firm coming out with published reports talking about the great rotation from bonds and into stocks. Stocks certainly did pretty well in the cycle but it wasn’t because it was fuelled by retail inflows of the bonds and the stocks. We know that, that didn’t happen from a fund flow perspective. And so, the bond bears have been wrong all along and I think they’ll continue to be wrong until we actually see sustained, above trend GDP growth that eliminates the global output gap, and I think that that is still some time away. So, look I think that people out there entitle their opinions. Bill Gross recently said if we cross above 2.6% based on the thickness of this pencil that marks the end of the bull market, I don’t look at it that way. I look at it that when you take a look at a 10 year note or you look at the long bond for that matter in each cycle the highs in yield are getting lower and the lows are getting lower. The highs are getting lower and the lows are getting lower. And so, we have to wait and see how far this thing goes. I would think that to really call for the secular bull market to be over I think we have to cross well over 4% and we’re not gonna get anywhere close to that in my opinion.

And in fact, if you take a look everything happening right now, we had a hundred-basis point back up in the 10 year note from where it was in July, that much is true, but I mean come on, in July deflation was dripping off everybody’s tongue. We had Europe and Japan going towards negative rates. We didn’t know how BREXIT was going to lead to a recession not just here but bring the EU into a recession as well, that was the mindset at that time. So, I mean at that point you had 40 year of JGBs at 0%, US 10-year treasuries at call it one thirty-five. So, we backed up since then over a hundred bases points that much is true.  

This is about the 8th time we had a backup of this magnitude in the past decade. They come and they go. I just think that there’s still too many powerful sector of forces at play. Global competitive pressures, aging demographics in the industrialized world. And we just have too much debt globally to withstand rises in the market rates much more than we already have done. And then I look back and I say DOW 20,000 stock markets melting up, the VIX below 11, 15-year high valuations in the stock market, commodities ripping, oil doubling over the past year, and I look at the 10-year note at the call it 2.5% and I can only say– that’s all you get for your money? I mean even if we go to 2.75% or 3%, seriously, considering everything that’s happening out there all the inflationary mindset of practically everybody talking on bubble-vision and everything that you read in the newspapers and this is all that you can really do is 2.50-2.60 in a 10-year note? You just start to wonder what happens when things start to unravel because there will be recession at some point.

I’ll say this right now it’s a guarantee that we’ll have recession at some point because the business cycle is not dead, we can debate as to what year that happens but here’s what we know, we know that bond yields make new lows in recessions and we know that there’s gonna be recession at some point and the most you can do right now at the peak of the cycle is 2.60% on the 10-year note really tell you something. So no, I’m not really buying in.

Notwithstanding the fact that bond yields are trading higher that could happen again for the next several months, it wouldn’t surprise me, will it be sustained? And my answer is an emphatic no.

This post originally appeared on Zero Hedge

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