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Gundlach: Bond Market Pushing Fed to Tighten

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“Long bonds want the Fed to tighten and deflate,” said Jeffrey Gundlach, CEO of DoubleLine Capital, on a call with investors Tuesday. “The bond market wants a depression.”

While Gundlach isn’t literally saying that fixed-income investors desire a dramatic turn in the economy, he’s pointing out that the long-bond market is warning the Federal Reserve that an increase in interest rates would likely lead to a sell-off in risk assets and a rally in safe-haven products. 

As for trends in emerging market debt, he indicated that he is upbeat on the group, since the U.S. dollar — which was putting pressure on these investments — seems to have peaked.

Furthermore, Gundlach does not see the junk-bond market getting into trouble in 2015 or 2016, and his is comfortable with where high-yield bonds are right now. “I am not expecting a disaster in the high-yield market this year and next year,” he said on the call.

As for German debt, the bond expert agrees with remarks by Janus Capital portfolio manager Bill Gross, who said last week that yields had bottomed. These yields are now doing “remarkably well,” he stated Tuesday.

In terms of distressed Puerto Rican municipal bonds, they represent a small amount of his closed-end DoubleLine Income Solutions Fund. “I know it is not for everyone, but it is one of the more interesting plays,” Gundlach added.

Commenting on demand for art, one of his hobbies, the bond expert said prices should remain high “as long as the world continues to mint new billionaires in Russia and China.”

DoubleLine has some $73 billion in assets under management as of March 31. The DoubleLine Total Return Bond Fund (DBLTX) had a five-year annual return of 8.7% vs. 4.6% for the Barclays U.S. Aggregate Bond Index as of early April.

— Check out Jeffrey Gundlach’s Stolen Artwork Found, Two Suspects in Custody on ThinkAdvisor.