(Bloomberg) -- Treasuries look overbought as a global bond rally pushes yields to multi-year lows, according to Scott Minerd, chief investment officer of Guggenheim Partners.
“Our indicators are showing things are getting really overbought and that this vicious spike down in yields we have had is likely to be reversed in the near-term,” Minerd said in a Bloomberg Television interview Monday.
Benchmark 10-year yields briefly dropped below 2.06% on Monday to touch the lowest level since September 2017, while 2-year yields fell as low as 1.81%. Fed funds futures show traders expect the U.S. central bank to cut its target rate by more than half a percentage point this year.
A bet on a steepening yield curve would likely be the “most productive trade on rates” should the Fed ease policy, Minerd said.
The yield on 10-year notes on Monday fell to as much as 28 basis points below three-month rates, the most since 2007. An inversion of these rates has historically proven a strong signal of looming recession.
Other comments:
- Guggenheim models “continue to point to a recession in the first half of next year,” Minerd said.
- Speaking about remarks made Monday by the head of the St. Louis Fed, Minerd said that while James Bullard is known to be “a bit of a maverick,” the official’s expectations on a near-term rate cut “cannot be ruled out.”
- Two-year Treasury yields could fall to around 1.5% should the Fed cut interest rates by 75 basis points, according to Minerd.
- Longer-term prospects for stocks are “not that good,” the Guggenheim CIO said. Shares will be “meaningfully lower” by the end of summer, and will likely take out lows reached in December.