The clock has run out on a decades-long Treasury bull market as the Federal Reserve begins to lift rates to combat inflation, which could force rates to “trend higher for a generation,” Guggenheim Partners Global Chief Investment Officer Scott Minerd told the Financial Times.
“I have to throw in the towel,” Minerd said in an interview published Tuesday, a day before the Fed’s latest policy decision. “The long bull market run in bonds has come to an end.”
The $23 trillion Treasury market has been in the midst of an intense selloff all year as investors adjust to the prospect of higher rates, sending yields sharply higher. The yield on the 10-year rate
briefly touched 3% on Monday for the first time since December 2018. Later today, policy makers are widely expected to deliver their first half-point rate hike in almost 22 years, and traders are preparing for the prospect of an even bigger increase in June plus additional hikes through the middle of next year.
The bull market in Treasurys has lasted for four decades and others have repeatedly called its demise, only to be proven wrong.
Minerd, who helps oversee $325 billion for Guggenheim Partners, indicated that he thinks the Fed will continue to lift rates, pushing the economy into a recession, rather than let markets dictate where they should be. It marks a reversal for Minerd, who said last year that he saw rates potentially turning negative in 2022. In March of this year, he told CNBC that he and his firm saw yields topping out at that time.
On Tuesday, he was quoted by the Financial Times as saying: “Rather than following a sound policy . . . we’ve decided we’re going to raise rates and shrink the balance sheet so the Fed will have inflation credibility.
“My concern is as we roll over and we see inflation starting to slow, the Fed will . . . not recognize where the neutral rate is and we’ll ultimately have a collision.”
Treasury yields were broadly higher Tuesday morning ahead of the Fed’s statement at 2 p.m. Eastern time. The 2-year rate
most closely associated with the Fed’s near-term policy path, rose above 2.8% and extended its climb into the highest levels since 2018.