NEW YORK (Reuters) - There will be “trouble for equity markets” if the yield on the benchmark 10-year U.S. Treasury note moves beyond 3 percent, Jeffrey Gundlach, chief executive of DoubleLine Capital, warned on Tuesday.
Late Tuesday, the 10-year yield US10YT=RR stood at nearly 2.38 percent.
In his first investor webcast this year, Gundlach said after the recent huge run-up in U.S. stock markets, investors should look to “peel off” their exposure to equities.
Gundlach, known on Wall Street as the ‘Bond King’, reiterated an investment call he made in late 2016, saying he expects markets to reverse their post-election moves.
He told Reuters in December that the strong U.S. stock market rally, surge in Treasury yields and strength in the U.S. dollar .DXY since Donald Trump’s surprising Nov. 8 presidential victory look to be “losing steam.”
Gundlach, who oversees $101 billion as of the end of December, said last month: “The bar was so low on Trump to the point people were expecting markets will go down 80 percent and global depression - and now this guy is the Wizard of Oz and so expectations are high. There’s no magic here.”
Gundlach said there are two major risks regarding Trump’s presidency: shrinking global trade and Trump’s temperament.
About interest rate hikes by the Federal Reserve this year, Gundlach said on Tuesday’s webcast: “All things being equal, the Fed will hike in June.” He expects two hikes this year with three possible.
Gundlach added: “I think the 10-year Treasury will go below 2.25 percent ... not below 2 percent” before edging up again.
Gundlach said “animal spirits” have been stirred by the Trump victory and that will help U.S. gross domestic product growth break out from its long-term 2 percent rate.
He said the Fed “needs to be less relaxed about things,” particularly if fiscal stimulus filters through the economy.
Reporting by Jennifer Ablan; Editing by Chris Reese and James Dalgleish