Who would have thought that after the Fed hiked rates for the second time in three months that Treasury yields would actually decline? But that's exactly what's happened.
The 10-year U.S. Treasury bond yield dropped from 2.6% on the day before the March 15 decision to 2.4% now, confounding many investors who had expected rates to continue climbing.
However, one person who’s not surprised is bond guru Jeffrey Gundlach. In a webcast that took place earlier this month, he predicted rates would go lower before they went higher, something that seems to be playing out in the markets right now.
Copper/Gold Ratio Signal
In his presentation, Gundlach forecasted that there would be a tradable rally in the 10-year bond, which would push the yield to below 2.25% (bond prices and yields move inversely). He pointed to record short positions in Treasuries as fuel for the countertrend rally.
Gundlach also said the copper/gold ratio suggested that the 10-year yield had more downside in the short term. The ratio has historically had a tight correlation with the 10-year yield, as can be seen from the chart below: