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Why Jeffery Gundlach Doesn’t See a Rate Hike Coming in June


May. 31 2016, Updated 3:57 p.m. ET

Yellen’s comments move yields upward

US Treasury yields rose across the yield curve in the week ended May 27, 2016, after Federal Reserve chair Janet Yellen said that a gradual rate rise could be appropriate in the coming months as the US economy progresses.

In an appearance at Harvard University on May 27, Yellen said that the US economy has made “a great deal of progress” and that it “continues to advance, with inflation metrics expected to rise and the labor market improving.” The two-year Treasury yield rose one basis point to end at 0.90% in the week ended May 27, while the 10-Year Treasury yield ended flat at 1.9%.

Meanwhile, the financial sector rallied. The Financial Select Sector SPDR ETF (XLF) rose by 2.6% in the week ended May 27. Even banking stocks such as Citigroup (C), Bank of America (BAC), and Wells Fargo (WFC) posted rises following Yellen’s comments on the rate hike.

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Gundlach doesn’t see hike in June

Jeffery Gundlach, CEO of DoubleLine Capital, has said that he doesn’t see a rate hike coming in June, as inflation is still running below the Fed’s target rate of 2%. Read more at Fed Hints at June Rate Hike: Why Is the Market Divided on Timing?

Investment impact

As yields on most Treasury securities rose, associated ETFs and mutual funds fell due to the inverse relationship between yields and prices. For the week ended May 27, the iShares 20+ Year Treasury Bond ETF (TLT) and the iShares Core US Aggregate Bond ETF (AGG) fell by 0.2% and 0.1%, respectively.

Meanwhile, the Dreyfus US Treasury Long Term Fund (DRGBX) and the Wasatch-Hoisington U.S. Treasury Fund Class A (WHOSX) ended almost flat week-over-week.

In the next article, we’ll have a look at some important economic indicators in the United States.


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