DoubleLine's Jeff Gundlach is warning that the record number of bets made in the futures market in favor of higher bond yields could "cause quite a squeeze."
Gundlach alluded in a tweet to the fact that net short positions in 10-year and 30-year Treasury futures are at record highs for noncommercial speculators. That could cause a swift drop in yields if rates were to start moving lower, and those investors were forced to cover their positions.
Yields move opposite price, and the bets against lower prices and rising yields, or short positions, have jumped as yields have moved higher this year.
"The [Treasury shorts] picked up pace after we broke 2.60 on the 10-year," said George Goncalves, head of U.S. fixed income strategy at Nomura. "They might be the catalyst that causes a rally. If something happens and they give up on their trade, it's that their thesis didn't work and they're covering their shorts."
Gundlach, CEO of DoubleLine Capital, tweeted on Friday, but his comments were still getting lots of attention on bond desks Monday morning. The Treasury market was quiet Monday, with yields slightly lower. The 10-year was at 2.84, and the 30-year bond was yielding 2.99 percent.
"There's definitely a tug of war between real money and the speculative investors. Real money keeps getting long and speculative investors are short," Goncalves said. He said neither investor group is winning, as the 10-year is "stuck between 2.80 and 3" percent.