This market is dealing with a “mass psychosis.” That’s the latest perspective on the state of Wall Street from Jeff Gundlach, the star money manager who founded DoubleLine Capital.
Late Tuesday, during his regular webcasts to discuss markets, Gundlach sounded perplexed that investors’ demand for the perceived safety of government bonds has driven 10-year Treasury notes TMUBMUSD10Y, -2.42% to record lows, even as the Dow Jones Industrial Average DJIA, +0.13% and the S&P 500 index SPX, +0.01% scored fresh record highs Wednesday.
Treasury yields, which have come off their 2016 nadir, are still hovering below their levels before the U.K.’s decision to exit the European Union—dubbed Brexit—sent global stock markets spiraling down. Bond prices move inversely to yields.
Gundlach used the following chart in his Tuesday webcast presentation to highlight the historic moves in Treasury yields:
“There’s something of a mass psychosis going on related to the so-called starvation for yield,” said Gundlach, whose fund manages about $100 billion. “Call me old-fashioned, but I don’t like investments where if you’re right you don’t make any money,” he said.
Gundlach believes that the benchmark 10-year note will move above 2% soon, but perhaps not until sometime next year. Some market participants see the benchmark’s yield tumbling further before that rise happens.
Tom Di Galoma, managing director at Seaport Global, predicts the 10-year yield will slip below 1% over the next six to nine months, citing the anemic European economy in the wake of Brexit and concerns over the world’s second-largest economy, China.
Meanwhile, the 10-year yield slipped below 1.47% midday Wednesday as U.S. stocks were struggling for a fourth straight session of gains, extending a record run.
So, the “mass psychosis” is still taking hold of Wall Street as stocks rally and Treasury yields drop.