NEW YORK (Reuters) - The U.S. bull market in bonds is “still soundly in place” despite the rise of the 10-year yield above 2.4 percent this week, Scott Minerd, global chief investment officer at Guggenheim Partners, said on Wednesday.
The 10-year Treasury yield closed above 2.4 percent for the first time in five months “from a combination of seasonal pressures which are driving rates higher and the rest increasing confidence that a tax deal is imminent,” Minerd said.
“There is still lots of uncertainty around the tax deal both in its substance and the likelihood it will pass this year,” he said.
Minerd, who oversees more than $243 billion, said while upcoming economic data is likely to support growth and add upward pressure on yields, the fact remains that the 35-year-old bull market in bonds is still intact.
“The 10-year Treasury yield would have to trade above 3 percent in yield to violate the long-term trend,” he said.
Other big bond investors have argued that the bull market for bonds could be over.
“The moment of truth has arrived for secular bond bull market!” Jeffrey Gundlach, who runs the $116 billion DoubleLine Capital, said in a tweet late Tuesday. “Need to start rallying effective immediately or obituaries need to be written.”
Andrew Brenner, head of international fixed income at NatAlliance Securities, said while his firm does not disagree with Gundlach, “we are not willing to throw in the towel just yet.” Wednesday, the yield on the 10-year Treasury note traded around 2.44 percent.
With Stanford University economist John Taylor under consideration by U.S. President Donald Trump to run the Federal Reserve, investors are bracing for higher yields as Taylor has repeatedly criticized the central bank for holding interest rates too low before and after the 2008 financial crisis.
“I think concerns about Taylor are a little overblown,” Minerd said. “He’d make a great chairman. He is a brilliant economist who has spent a lifetime in preparation. Hard to imagine a better candidate.”
Minerd, who personally knows Taylor, said: ”While he developed the Taylor Rule, which would suggest much higher rates, he is also a practical man who understands that the application of rules depends on specific circumstances.
“I believe he would be both disciplined and pragmatic in his policy approach. He clearly understands that the current environment presents a relatively unprecedented set of circumstances for monetary policy which will require rigorous and disciplined policy actions.”
Guggenheim had positive net flows of $560 million into its fixed-income mutual funds and ETFs in September, the firm said. Guggenheim’s flagship Total Return Bond Fund, an $8 billion intermediate-term fund that has outperformed 98 percent of its rivals over one, three and five years, according to Morningstar, had net inflows of $219 million in September.
Guggenheim Macro Opportunities Fund, a $6.2 billion non-traditional bond fund that has outperformed 99 percent of its rivals over five years, had $179 million in net inflows in September and has taken in $2 billion year-to-date, according to Guggenheim.
Reporting By Jennifer Ablan; Editing by Steve Orlofsky and Chizu Nomiyama