Gary Shilling: Expect the 10 Year Yield to Drop to 1%

Few people have been more bullish on government bonds over the last 30 years than Gary Shilling.  So love his advice or hate it, he seems to have a pretty good feel for the government bond markets.  I thought this interview with Forbes was interesting (via Meb Faber). His macro view is always interesting, but it’s also interesting that he thinks junk bonds are a bubble.  In addition, Shilling says the 10 year is going to 1%:

“I’m suggesting 2% on the long bond and 1% on the ten-year.

One of the great forecasters said, “You know, you either forecast what’s going to happen or when it’s going to happen, but not both.” I would say over the next year or so, and that’s assuming that this grand disconnect does get closed. If we go from 3% to 2% on the long bond that’s a total return, assuming it takes place over a year so you get a year’s worth of interest. That’s a total return of about 16% and it’s about 25% on a 30-year zero coupon bond. That’s pretty attractive, relative to what I think would happen in stocks, which would be on the negative side.

The ten-year, but you don’t get nearly as much bang per buck in the ten-year. The shorter duration, the shorter maturity makes a huge, huge difference. That’s why I’m one of those guys who still likes a 30-year bond, even though the ten-year is sort of the standard by which the whole world judges government debt.”

Read the full interview here.

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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