“There’s a realization now that long-term Treasuries are not a legitimate safe haven asset,” the veteran bond manager said in an interview at the Bloomberg Global Credit Forum in Los Angeles on Wednesday. “A reckoning is coming.”
Gonlak also touched on the appeal of gold, stretched market valuations, the state of private credit, artificial intelligence and long-term investment opportunities in India during the wide-ranging discussion. Gundlach said investors should consider adding non-dollar assets, adding that his firm is beginning to introduce foreign currencies into its funds. His comments came a day before a closely watched auction of 30-year Treasury bonds.
Gondlach, 65, likened today’s market environment to the eve of the dot-com bubble burst in 1999 and the global financial crisis in 2006 and 2007. He further noted that the booming private credit industry resembled the collateralized debt obligation (CDO) market in the mid-2000s, “when there was huge issuance and huge take-up.”
The investor noted that public credit markets have outperformed private credit markets in recent months and believes the latter are at risk of being “overinvested” and forced to sell.
“I just don’t think the excess rewards are anywhere near as high as they once were,” Gundlach said, citing the potential sale of private assets by U.S. institutions such as Harvard University, which has considered selling some of its endowment’s private equity holdings amid the Trump administration’s cuts to grants and funding.
Gundlach founded DoubleLine after controversially exiting TCW in 2009, where he was a star bond manager. As of March, DoubleLine managed $93 billion in assets and had more than 250 employees.
The company and its founder don’t shy away from bold predictions. Gundlach predicted Donald Trump’s first presidential win in 2016, and in September he accurately predicted a half-percentage-point rate cut by the Federal Reserve and gave the central bank an F grade for its response to the economy. Earlier this year, the firm also raised the unanswered question of whether Microsoft Corp. bonds are safer than U.S. Treasuries.
Next stop: 6%?
As for Treasuries, Gundlach said long-term bond yields could continue to rise as the economy begins to weaken. If yields reach 6%, that could prompt the Federal Reserve to step in and start quantitative easing, buying long-term U.S. Treasuries to control borrowing costs.
Faced with rising federal debt and deficits, DoubleLine and peers such as Pacific Investment Management Co. and TCW Group Inc. have been avoiding investing in the longest-dated U.S. government bonds in favor of shorter-dated bonds with less interest rate risk.
The yield on the 30-year Treasury bond hit a nearly two-decade high of 5.15% last month and was trading around 4.9% Thursday. In a telling sign, long-term benchmark yields remain higher this year despite a decline in short-term Treasury yields.
While better known for his fixed-income investments, Gundlach has become increasingly bullish on gold, doubling down on its status as a “real asset class” that is “no longer an asset for crazy survivalists” and speculators.
“We’re going through a huge paradigm shift where money is no longer flowing into the U.S. and gold is suddenly the place where the quality asset is flowing,” he said.
Gondlach has previously predicted that gold prices will break records, as they have this year. In May, he told CNBC that gold could rise to $4,000 an ounce from around $3,350 an ounce currently.
He also pointed to India as one of the “most attractive” long-term investment opportunities.
“In times like this, the key to investing is to get on board with the long-term themes,” Gundlach said. “It may take 30 years, but you should invest in India because it is in a similar situation today to China 35 years ago.”
