‘Gundlach ratio’ suggests bond yields may rise

(MarketWatch) Anyone who has followed Jeffrey Gundlach, the chief executive of DoubleLine Capital and the so-called bond king, knows he likes one market-based predictor for bonds.

Gundlach tracks the ratio of copper prices to gold. Gundlach believes in the predictive value of the ratio since copper is sensitive to swings in the economy, while gold climbs when investors get frightened.

As the chart shows, copper is starting to climb relative to gold, which should imply that bond yields will rise, meaning bonds will fall in value.

On Wednesday, the yield on the 10-year was little moved at 1.83%. This year it’s dropped by 85 basis points.

Gundlach said during a webcast Tuesday night he sees long-term rates marching higher as recession risks recede, according to a CNBC report.

Ahead of the Federal Reserve meeting later Wednesday, Gundlach criticized Fed Chair Jerome Powell, saying most of what he has done this year has been bad and driven by bond market expectations more than need.

The Fed has lowered interest rates three times in 2019 and begun to enlarge its balance sheet again through regular repo auctions and purchases of U.S. Treasury bills. 

Gundlach also said that he expects President Donald Trump to get re-elected next year. Gundlach was one of the few on Wall Street who forecast the Trump election in 2016.


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