Jeffrey Gundlach, founder and chief executive of DoubleLine Capital, is warning on Twitter that the record number of bets made in the futures market in favour of higher bond yields could “cause quite a squeeze”. Gundlach, known as Wall Street’s “Bond King”, pointed to the fact that net short positions in ten-year and 30-year Treasury futures are at record highs. This could cause a sharp drop in yields if rates were to start moving lower (reflecting rising prices) and those investors were forced to cover their positions.
Gundlach also noted that there is a “big long positioning” in the US dollar while the S&P 500 is back at its highs “on diminishing momentum”. The stockmarket has just surpassed the streak set between early 1990 and late 2000; it is now up more than 320% from its low in March 2009. But he expects growth to weaken slightly in the next few months, and a fall in bond yields resulting from the short squeeze would reinforce the slower-growth narrative, threatening the stockmarket and the dollar rally – both of which are based on a bullish view of the US economy.
Gundlach has a history of good calls. In April he suggested shorting Facebook, and last month the stock duly slumped after the social network missed its revenue targets. “We hear the good things about Facebook, which is 2.2 billion users,” he told Reuters. “I hear 2.2 billion compliance breaches.” He also reckons that a regulatory clampdown on the tech giants could end the equity bubble. Another recent tip was an exchange-traded fund tracking oil and gas explorers.