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Gundlach: Bond Market Is Wrong to Predict Rate Hike This Year

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DoubleLine CEO and bond guru Jeffrey Gundlach said Tuesday that he sees the chance of a hike in interest rates less than 30% for September and under 50% for December.

The bond market, according to data, “weirdly” believes the odds of a hike this year have risen, Gundlach says, but he does not agree. “I would take the under on that … I think the odds of raising rates by December is less than 50%,” he explained during a quarterly webinar.

“The Fed’s willingness to increase interest rates has diminished,” Gundlach said.

During the webcast, the fixed-income expert showed analysis of Bloomberg data through Monday. The figures show that the bond market sees the likelihood of a rate hike at 0% for June, about 29% for September and 58% for December.

These figures jump to 64% in January 2016 and 91% in June 2016.

A survey of 125 financial advisors released early Wednesday by SEI finds that 53% of financial advisors anticipate a rate hike by year end. The survey also shows that 50% of advisors polled believe a hike will lead to a market downturn, and 78% expect the Dow Jones to return less than 10% in 2015.

According to market figures shared by NAREIT on Wednesday, the Dow Jones industrial average is down 0.3% so far in 2015, while the S&P 500 is up nearly 2%. The Russell 2000 has improved close to 4.3%, while the Nasdaq’s growth stands at almost 6%.

Number Crunch

Gundlach sees interest rates ending the year roughly where they began 2015: 2.20% to 2.25%.

“People bailing on bond funds at 2.45% will probably end up buying them back at lower yields,” he explained. Still, “Get very scared if the 10-year accelerates above 2.6%,” Gundlach warned.

Meanwhile in Europe, it’s been a wild ride. The 10-year German bond yield neared negative territory about two months ago, but it recently topped 1%.

“A lot of fools bought German bonds at yields in the single digits for the 10-year, thinking somehow they would go negative. That hasn’t worked out,” Gundlach said.

As for high-yield bonds, “I am not predicting a collapse of the high-yield bond market in 2015,” he stressed.

However, the bond expert cautioned investors, “It’s okay to be dancing the high-yield dance, but we suggest dancing near the door.”

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