Tepper: Bond rally about over


"It's the beginning of the end of the bond market rally," David Tepper tells Bloomberg. "We are done." His comments come after the ECB earlier today cut interest rates and set about launching an asset purchase program.

After dipping to 2.39% in the aftermath of the ECB action and a minor miss in the ADP jobs report, the U.S. 10-year Treasury yield has shot back higher, up five basis points on the session to 2.45%

The German 10-year Bund yield is up one basis point at 0.97%, while Spanish and Italian 10-year yields are sharply lower, with both - Spain at 2.18%, and Italy at 2.35% - comfortably lower than the U.S. 10-year.

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Comments (23)
  • MartinGale7
    , contributor
    Comments (207) | Send Message
     
    That makes no sense. ECB cutting rates is likely to create upward pressure on bonds.
    4 Sep 2014, 12:02 PM Reply Like
  • WisPokerGuy
    , contributor
    Comments (1401) | Send Message
     
    Better listen to Tepper. He is one of the smartest guys in the room and VERY rarely wrong.
    4 Sep 2014, 12:58 PM Reply Like
  • sreimer77
    , contributor
    Comments (242) | Send Message
     
    The market has become so predictable. The market knows the US is scaling back QE3, and it knows their is nothing more the EU can now do. Monetary policy is now effectively maxed out and the markets know this and is now realizing that easing has ended. As a result, yields will rise, bonds fall, the cost of capital increase, which will lead to depressed EPS, a lowering of forecast and severe market correction.
    4 Sep 2014, 03:09 PM Reply Like
  • 8747S1115R
    , contributor
    Comments (285) | Send Message
     
    The movements today are fueled by speculation. You are right, when the ECB does start purchasing ABS and Euro denominated bonds we will see upward pressure on our bond prices. We WILL retest the low yields set back in 2012 and if not at least see a 1 handle on the ten year. Sorry Tepper but your call is premature.
    4 Sep 2014, 12:06 PM Reply Like
  • sreimer77
    , contributor
    Comments (242) | Send Message
     
    Bill Gross's call in March 2012 was too early. I think Tepper is dead on. TBT has been rallying hard from a multi-year bottom. It is a great hedge against rising rates and had tested it's multi-year lows. The latest move that brought rates back to record lows was the last leg. The Fed is ending QE3 this month and will be raising rates by March.
    4 Sep 2014, 03:12 PM Reply Like
  • King Rat
    , contributor
    Comments (1819) | Send Message
     
    The first two comments are on to something. Of all countries, Spain has a 10 year around 30bp below the US 10 year? Forgetting yield and focusing on risk, I would rather have my money in US bonds than Spanish or Italian bonds. Thus I'd be willing to spend more as in accept a lower yield in return for the lower risk.

     

    For Tepper to suggest US bonds to fall we can accept one of three possibilities.
    1 He is expecting another Euro bond collapse
    2 He thinks the US is more risky than Spain or Italy
    3 He is lying
    4 Sep 2014, 12:17 PM Reply Like
  • sreimer77
    , contributor
    Comments (242) | Send Message
     
    Or he thinks the 35 year bond market rally has come to an end! interest rates were what in the 80'? I know my father had a mortgage with a 15% interest rate! Today were at 4%. That 30 year bond has gone straight up in value to bring a 15 % yield down to 4%!
    4 Sep 2014, 03:14 PM Reply Like
  • Captain Pike
    , contributor
    Comments (890) | Send Message
     
    I don't pretend to know anything about bond trading, but I believe it is a lot of crap that can't go beyond the realities of the economic situation, an example was the false rise talk last year from the bond trader types.

     

    THE REALITY is your father had such a high interest rate on his mortgage because Paul Volker was trying to kill inflation by raising rates at the Fed, inflation that was DIRECTLY caused by the 2nd OPEC oil shock of the 1970's. That action created stagflation, killing economic activity without killing high inflation. Oil shocks, embargo's, speculations, and shortages, have always been the cause of inflation (except 1 small period) since the 1973 embargo.

     

    Now with oil/gas plentiful and home-grown there will be NO inflationary pressures on the economy and hence NO reason to raise interest rates. So you and Tepper can talk all you want, but rates are low to STAY. Look at all the key metrics in the decades before 1970.
    4 Sep 2014, 04:14 PM Reply Like
  • MartinGale7
    , contributor
    Comments (207) | Send Message
     
    @King Rat - Yes. But add Japanese bonds JGBs to your list too. At 52bp for a ten year, it represents even poorer value again that Spanish or Italian bonds. One certaintly is that at some stage in our lifetime, either JGBs will have to default or the JPY will weaken by an order of magnitude following the BOJ monetising large portions of unpayable JGB debt.
    4 Sep 2014, 12:25 PM Reply Like
  • Hank890
    , contributor
    Comments (2269) | Send Message
     
    Martin, you need to factor in the VERY HIGH Japanese savings rate. Japanese consumers keep a very large percentage (relative to western economies) of their private assets in a postal (jGOV) savings account.
    4 Sep 2014, 12:38 PM Reply Like
  • MartinGale7
    , contributor
    Comments (207) | Send Message
     
    So how will the Japanese Government ever service their ever increasing 230% (public) debt to GDP? The Japanese people can save all they like, but it is unlikely that they will pay the the debts of their government in any way other than inflation/debased currency.
    4 Sep 2014, 12:48 PM Reply Like
  • leopardtrader
    , contributor
    Comments (3789) | Send Message
     
    David is right. Here are the reasons as I see them http://bit.ly/1n9F5ns
    4 Sep 2014, 12:36 PM Reply Like
  • George Spritzer, CFA
    , contributor
    Comments (1295) | Send Message
     
    Tepper seems to be hedging by saying "it is the BEGINNING of the end of the bond rally". Seems to be saying we are in the 8th inning of the bond rally but there is still another up move remaining. The last move of a bull market is often quite strong.
    But he also said "we are done", so he could claim to be correct either way in the short run.
    4 Sep 2014, 01:53 PM Reply Like
  • Robert Duval
    , contributor
    Comments (7852) | Send Message
     
    Where did he say there is another (strong) up move remaining?
    4 Sep 2014, 07:18 PM Reply Like
  • George Spritzer, CFA
    , contributor
    Comments (1295) | Send Message
     
    He didn't say it explicitly, but "beginning of the end" means we are not yet AT the end of the rally but in the "excess" phase which often causes stong upmoves.

     

    For example, internet stocks were very strong in late 1999 which was "the beginning of the end" of the tech bubble rally.

     

    http://bit.ly/1Ac4PW9
    4 Sep 2014, 07:37 PM Reply Like
  • Fracjob
    , contributor
    Comments (2394) | Send Message
     
    Or, Tepper is saying that if you think beyond the end of your nose, if I may, that you are now seeing all that you are going to see. This type of thinking is not always understood by all.
    4 Sep 2014, 03:03 PM Reply Like
  • XTigerX
    , contributor
    Comments (315) | Send Message
     
    Uh oh.....the widow maker trade.
    4 Sep 2014, 04:23 PM Reply Like
  • economist11
    , contributor
    Comments (80) | Send Message
     
    I agree with Tepper. There are arguments on both sides, but the chances seem to favor a gradual rise in interest rates.
    4 Sep 2014, 08:13 PM Reply Like
  • tjn6175
    , contributor
    Comments (46) | Send Message
     
    I agree with Tepper. This was also a couple days AFTER TLT ex-date, for what its worth. Real cash was king today, and its on a big up slope. Great economic data coming daily, but the market can only drive up stock prices so far. Schiller here we go again? Apparently, an 18% rise in long term treasury bonds is good enough to take some profit, wait for the FED to raise short term rates, and then ladder into the lower end of the curve, buying as interest rates rise. Gold, most equities, and bonds on the way down? The only uncorrelated asset lately is the US dollar. Looks like emerging markets are benefiting as well.
    4 Sep 2014, 10:41 PM Reply Like
  • Rootarmo
    , contributor
    Comments (373) | Send Message
     
    I think when it does happen many are going to be sitting around kicking themselves that they did nothing about it...
    4 Sep 2014, 11:52 PM Reply Like
  • Azinsd
    , contributor
    Comments (102) | Send Message
     
    Great economic data? I suppose after years of tough data the recent news looks better/ok

     

    The data is satisfactory at best but it does not justify higher rates which will stymie any progress and make debt service unmanageable

     

    Rates must stay low and/ or some other form of QE will emerge - I don't see sufficient growth/ budget management/ geopolitical stability to warrant otherwise

     

    Gold/Silver is the answer - it's tremendously under owned and not in a bubble...
    5 Sep 2014, 02:15 AM Reply Like
  • Haisenberg
    , contributor
    Comments (3) | Send Message
     
    I did not wait for Tepper to tell me what to do. I sold my TLT that I bought a little above $100 for about $117 after 8-9 months holding period. The decision was not very well thought out. It was somewhat of a knee-jerk reaction to the volatility from the last several days. But I was also reacting to the strong economic indicators lately: ISM, construction spending, etc. When I think about it though, the fundamental reasons that made me buy TLT at the beginning of the year when everybody was saying interest rates would rise remain intact: low inflation, tepid growth, rotation from the short to the long end of the bonds as the short rates rise sooner and faster than the long rates, strong global demand for US treasuries. Maybe I should have held a little longer. I guess what really made me sell was that now buying or holding treasuries is not a contrarian play anymore. Everybody is saying now that rates will stay low and maybe go even lower just like 100% of the economists were saying at the beginning of the year that they'd go higher. When everybody agrees on a trade, the easy money is usually already made. Time to look for something more interesting and exciting.
    5 Sep 2014, 01:09 AM Reply Like
  • MartinGale7
    , contributor
    Comments (207) | Send Message
     
    It's funny how many people have been predicting the end of the bond rally and got it *very* wrong. While we have Keynesian central bankers, we will be in a bond rally. They control the market and their tool of choice is lower rates.
    5 Sep 2014, 04:34 AM Reply Like
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