Doubleline's Gundlach Sees 30 Percent Chance for 10-Year Treasury Yield to Match Record Low

Wednesday, 07 May 2014 07:07 AM

By Dan Weil

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The 10-year Treasury yield is likely to slide a bit, and there's a small chance it could really plunge, says Jeffrey Gundlach, CEO of Doubleline Capital.

The yield stood at 2.58 percent early Wednesday.

"Without having too much economic weakness, or without too much difficulty in the world, we could probably see the 10-year make it down to 2.50, 2.47," he tells CNBC.

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"To get through that level you would need some kind of psychological shift and some sort of macro event to make investors really want a flight to safety."

When the 10-year yield hit a record low of 1.39 percent in July 2012, Gundlach gave only a 10 percent chance of the yield returning to that level. Now he gives it a 30 percent chance.

So what would push the yield back down to its nadir?

"Maybe a really hard slowdown in China could cause a change in attitudes and deflationary fears, maybe a hotter situation in Ukraine could cause those types of fear," Gundlach notes.

"Maybe just the GDP that came out at basically nothing in the first quarter." The economy grew 0.1 percent in that period.

If U.S. banks have anything to do with it, Treasury yields might return to record lows.

After cutting their Treasury and agency-bond holdings last year for the first time since 2007, banks have increased their holdings every month this year, according to Federal Reserve data assembled by Bloomberg.

"The economic situation is still not fully bared out, and they have to do something with their cash," Jeffery Elswick, director of fixed-income at Frost Investment Advisors, tells the news service.

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