BOND KING WAR: Jeff Gundlach fires shots at Bill Gross

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(Jeff Gundlach and Bill Gross.Reuters; Bob Bryan/Business Insider)

Jeff Gundlach on Tuesday made it clear that, once again, he does not agree with Bill Gross' view of the bond market.

During a webcast presenting his 2017 outlook, Gundlach, the founder of DoubleLine Capital, said certain "second-tier" managers were focusing on 2.6% as an important level for the 10-year Treasury yield — a threshold beyond which the bull market in bonds would end.

It so happened that Bill Gross, the portfolio manager of the Janus Global Unconstrained Bond Fund, made that 2.6% call in a Bloomberg interview on Friday and then in his monthly investment letter on Tuesday. (That 2.66% also happens to be the year-end median forecast of strategists Bloomberg surveyed.)

In the letter, Gross said it was his only forecast for the year. To stress his call, Gross added that the 2.6% level was more important than Dow 20,000, $60 oil, or euro-dollar parity.

But Gundlach sees things otherwise. It's "almost for sure" that the 10-year yield is going to take out 3% in 2017, Gundlach said. "It's bye-bye bull market, rest in peace." Yields rise as bond prices fall.

"That will define the end of the bond bull market from a classic chart perspective, not 2.60," he added. That's because there would no longer be declining valleys in yields, with the trough of 1.39% established in 2012.

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(DoubleLine Funds)

Gundlach added that it's not radical to forecast a 10-year yield of 6% by 2020. The 10-year yield hasn't been that high since 2000.

Bond yields rose in the weeks before the election and spiked immediately afterward as investor expectations for faster economic growth, inflation, and higher interest rates also increased.

Gross used to be described as Wall Street's bond king for his success at Pimco, the company he founded and then left in 2014 after 43 years. The media had conferred that title on Gundlach as Gross' Janus Global Unconstrained Bond Fund started posting lackluster results compared with its peers.

But Gundlach's own fund may now be experiencing some turbulence. The DoubleLine Total Return Bond Fund posted its biggest-ever one-month withdrawal in December, according to Morningstar, with a net outflow of $3.5 billion.

"We have seen, as have other intermediate-term bond managers, net outflows in the DoubleLine Total Return Bond Fund in the final months of the year as investors have responded to rising rates and also, maybe, doing some tax-related selling," DoubleLine analyst Loren Fleckenstein told Reuters last week.

Gundlach's presentation was dedicated to his markets outlook, so it did not address fund performance — that's covered separately in several webcasts during the year.

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