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Gundlach says flatter Treasury yield curve could become a concern

Published 21/06/2017, 21:48
Updated 21/06/2017, 21:50
© Reuters. Jeffrey Gundlach, CEO of DoubleLine Capital, speaks during the Sohn Investment Conference in New York

© Reuters. Jeffrey Gundlach, CEO of DoubleLine Capital, speaks during the Sohn Investment Conference in New York

By Jennifer Ablan

NEW YORK (Reuters) - The U.S. Treasury yield curve flattening could become a concern for economic growth when two-year and three-year Treasury note yields are about the same, and the price per barrel of WTI crude oil falls into the $30-dollar range, said Jeffrey Gundlach, chief executive at DoubleLine Capital, on Wednesday.

The slope of the yield curve has been flattening, with short-term rates rising faster than longer-bond yields. This typically happens when monetary policy is tightened.

"There’s no hard data that you could point to that signals recession," Gundlach said in a telephone interview.

But that does not mean economic growth is exploding.

"Lower CPI (Consumer Price Index) in the next couple of months will be a cold bucket of water for the Fed tightening dreams," Gundlach said. "Commodities are super weak, with the dollar down year-to-date, no less."

Gundlach, known on Wall Street as the Bond King, said he is becoming more positive on international equities over U.S. stock markets because the Fed is raising rates with "quantitative tightening on top of it with its plans to shrink its balance sheet."

The yield curve between five-year notes and 30-year bonds flattened to 96 basis points, the narrowest since December 2007. Five-year note yields (US5YT=RR), which are highly sensitive to rate policy, rose to a four-week high of 1.80 percent on Tuesday.

© Reuters. Jeffrey Gundlach, CEO of DoubleLine Capital, speaks during the Sohn Investment Conference in New York

Thirty-year bond yields (US30YT=RR), which are largely driven by future expectations of growth and inflation, meanwhile dropped to 2.72 percent on Wednesday, the lowest since Nov. 9.

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