Gundlach: Inflation Worries ‘5 Years Too Early’

DoubleLine CEO Jeffrey Gundlach doubled down on his believe that interest rates are unlikely to rise in the near future on a webinar Wednesday.

“I’m virtually certain that Janet Yellen does not want to raise interest rates,” Gundlach said during the recent call.

(On Thursday, the Federal Open Markets Committee maintained its commitment to keep interest rates low for a “considerable time.”)

These comments build on what the bond expert said last week, when he predicted that the 10-year U.S. Treasury yields would stay between 2.2% and 2.8% for the rest of the year.

“That is the 2014 message: With all the chatter over tightening, short-term rates have gone up and long-term rates have down,” he explained. “The market is not terribly concerned on the long end.”

Yellen and others are watching inflationary pressures carefully, of course. But the idea that inflation is likely to provoke a big jump in interest rates is “at least five years too early,” he says.

In the short run, European bond rates have been coming down due to economic weakness and deflation, pushing investors into U.S. Treasuries, which are outperforming their European counterparts by 150 basis points in some cases, he notes.

Purchasing on the part of non-U.S. buyers of bonds is largely offsetting any effects on the market for tapering, Gundlach adds. This buying is up $600 billion year to date over last year.

As he said last week, the key indicators for bond investors to watch are European bond yields, “which I think have bottomed, but you have to watch to see if they rise substantially,” he explains.

Earlier, he described them as “impossibly low” vs. those of the U.S.

“U.S. bonds have only gone up a little bit and been profitable. Just because rates bottom out is not necessarily a reason to be terribly concerned. Watch for velocity, which we’re not likely to see before year end.”

Equity Markets, Other Issues

Asked about the impact of a stock sell-off over interest-rate concerns, Gundlach said, “If rates rise, it’s undebatable that it removes the zero-rate comparison and  must be viewed as a negative. It would be a challenge not just for stocks but for other assets.”

Again, he reminded webcast attendees that he isn’t looking for such a scenario to take place over the next six months.