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.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

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.

More Posts - Website

Follow Me:

  • Alberto

    There are 16 trillions of government money and 50 trillions of private debt (people on the other side call it “my credit” that is “my money”). An important percentage (nobody knows how much) is not real. The 3% growth necessary to keep this Ponzi finance going on is finished. Balance sheets of banks, insurance companies, drilling companies, mining companies… are fake. So Schilling was right 15 years ago, 10 years ago, 5 years ago and he is right now. Deleveraging will have to accellerate in order to have again a sounding real economy. Authorities have a choice: destroy the international monetary system or change their plan. I argue they will change the plan and that we will see many many SNS bank like defaults/nationalisations in Europe, US, AUS, Canada etc… and the 30 years yeld will be 2%

  • Nils

    I find it astonishing how stable this system actually is given that huge swaths of the population put in a few days of work a month so their lenders can live in leisure. Usually, with the wealth imbalances as they are one would expect some sort of huge backlash.

  • Nils

    Interesting point of view, and a very reasoned argument. No politics, no alarmist rhetoric. We need more of that.

  • Anonymous

    Think about it, none of it is real is it?

    It’s all just debt, the opposite of realness.

    Wait until the unreal debt money decides its time to run for the real world, that’s when Cullen will wake up to reality. One hopes.

  • Geoff

    “Nothing real can be threatened. Nothing unreal exists” – ACIM

  • Cowpoke

    So more Refie’s to come..

  • Alberto

    Exactly, Dr. Schilling is not a screamer, he is not believing in “the end of growth” but in a very slow growth until the deleveraging cycle is completed. He thinks we need 5 years more. I’m personally much more pessimistic on the long term because of the energy problem but it’s something that we will see 5 years from now, i don’t see significantly higher oil prices in the near future (not so for nat gas which is below production costs in the US). For the next future I’m 99% sure that Mr. Shilling is right about the pace of deleveraging and having some 30 years treasury bonds is a must for me. He is the opposite of WS propaganda and represents a really minuscole minority of analysts and his opinions are valuable.

  • KB

    If considering what can come first (if ever) – 10y ust yield at 1%, or hyperinflation, I am in 1% yield camp. Not ruling out hyperinflation coming aferwards though ).

  • BHB

    I highly recommend Dr.Shilling’s “Investor Insight” newsletter. It comes monthly and is incredibly detailed. His analysis of the housing market is extremely thorough as well.

  • Boston Larry

    i respect what Alberto and others have to say about this. But I’m surprised that we have not yet heard from bond bears in these comments. If the recovery continues as Jan Hatzius and other leading economists forecast, then it seems likely that long-term interest rates will rise and equities would continue to rise over the next year or two. What catalyst might trigger the interest decline forecasted by Shilling? Probably a return to the European sov debt crisis and a big slowdown in globabl growth to one percent or less. Is that realistic within the next year?

  • Andrew P

    I wouldn’t rule out the 10 year going below that. Even going below zero. If there is a panic in the EU and Japan at the same time, the flight capital into the US could drive even the 30 yr negative.