Dennis Gartman is sounding the alarm: a bear market is coming in bonds.
“It’s the first time in a long time I’ve wanted to be that way,” he said on CNBC late Monday, but he’s convinced rates are heading sharply higher from here. The benchmark 10-year note traded at a yield of 2.77% on Tuesday morning, but it could easily reach 4% in the next two years and 6% within the next 10 years, said Gartman, who publishes The Gartman Letter, a note about the capital markets.
Benchmark Treasury yields have moved over a full percentage point higher since this spring as concerns mount about when the Federal Reserve will begin withdrawing its bond purchase program, which has been used as economic stimulus. Market economists have largely projected that the timing of the so-called taper will be sometime between next month and spring of 2014.
Janet Yellen, nominee to take over as chair of the Fed, heads to Congress on Thursday for her confirmation hearing. If she takes over as leader of the central bank, she will inherit a Fed that “wants a more positively sloped yield curve,” Gartman said. The front end of the yield curve will likely stay anchored, as the Fed has committed to keeping its key interest rates low, but the taper is likely to push out the long end of the curve. That means the bonds many investors hold in their portfolio will be worth less.
But it’s not just driven by Fed expectations, says Gartman. “Friday’s employment number was indicative of what’s going on in the economy. Outside of New York, things are doing quite well, thank you very much,” he said.