Warning: file_exists(): File name is longer than the maximum allowed path length on this platform (260): C:\zpanel\hostdata\zadmin\public_html\forexbr_com_br/wp-content/cache/supercache/www.forexbr.com.br/2020/03/04/key-words-bond-guru-gundlach-says-better-to-stay-in-cash-than-treasurys-as-u-s-10-year-yield-hits-record-low/meta-wp-cache-543d4e28e7c27a5cfd1c4604295daad6.php in C:\zpanel\hostdata\zadmin\public_html\forexbr_com_br\wp-content\plugins\wp-super-cache\wp-cache-phase2.php on line 71 Key Words: Bond guru Gundlach says ‘better to stay in cash’ than Treasurys as U.S. 10-year yield hits record low – Forex Brasil

Key Words: Bond guru Gundlach says ‘better to stay in cash’ than Treasurys as U.S. 10-year yield hits record low

Gundlach felt the bond-market was getting close to reaching the low for the yield in the benchmark 10-year U.S Treasury note, but added that the 2-year note TMUBMUSD02Y, 0.593% yield was likely to see a steeper slide as it is more sensitive to Federal Reserve policy. His comments comes after the Fed cut its benchmark fed funds rate by 50 basis points on Tuesday, with some traders now expecting another cut at its scheduled policy meeting at March 17-18’.

“I’m in the camp that the Fed will cut rates again, and perhaps in two weeks,” he said.

Bond yields have fallen dramatically since the beginning of the year amid worries that the spread of the coronavirus would put a dampener on economic activity across the globe. The 10-year Treasury note yield TMUBMUSD10Y, 0.930% touched 0.90% on Thursday, a record low.

Gundlach said investors should pay attention to the economic damage that could be potentially wrought by the coronavirus, and that watching the direction of weekly U.S. jobless claims data along with consumer confidence could be helpful in seeing how households — the linchpin of the economy — are holding up.

“Nobody knows what’s happening here, so caution is appropriate,” he said.

Gundlach also suggested that the Fed’s decision on Monday to carry out its first interest rate cut between policy meetings since the 2008 financial crisis was less driven by the recent correction in major U.S. equity benchmarks like the S&P 500 SPX, -3.66%, and was more related to the pressure on corporate debt markets that surfaced in the past two weeks.

As prices for sub-investment grade corporate bonds tumbled the compensation investors demanded for owning such debt over risk-free Treasurys blew up to 5.04% last Friday, its highest levels since January 2019, from around 3.60% at mid-February, according to Bank of America Merrill Lynch. Since the Fed’s interest rate cut this premium has narrowed.

“Jay Powell cares a lot about corporate credit being from a private equity background,” he said.

Gundlach pointed out the impetus for interest rate cuts may have also been the vanishing supply of corporate debt over the last few weeks. Debt issuance even among investment-grade rated corporations had briefly ground to a halt for several days underlining the difficulty of tapping capital markets when risk assets were in free-fall.

Read: Junk-bond issuance stops ‘dead in its tracks’ on coronavirus fears

He highlighted the historical parallel of December 2018 when the Fed pivoted from projecting several interest rate hikes to later standing pat, and then beginning its 2019 monetary easing campaign. During December 2018, the seizure in the corporate bond market had also forced companies to shelve plans to raise debt amid concerns that the Fed was excessively tightening financial conditions.

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