Jeff Gundlach’s Contrarian View of Treasuries and Today’s Other Top Stories

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The bond market seems to have been hanging over the precipice for almost a year now. With many market commentators thinking that interest rates were only going up and therefore Treasuries prices had nowhere to go, but down.

But there is one man who takes a contrarian view of this scenario. His name is Jeff Gundlach, founder of DoubleLine Capital. Gundlach sat down with Matt Schifrin at Forbes to discuss his view that interest rates weren’t going up, infact they are just as likely to go down.

“The Fed [is] buying a trillion dollars worth of Treasury bonds and guaranteed mortgages per year when the budget deficit is now less than a trillion dollars on a twelve-month trailing trajectory basis, they’re taking all the high-quality collateral or a great fraction of it out of the flow in the market. So there’s less and less high-quality collateral.” Said Gundlach, who went on to say.

“There aren’t any more Triple A, or Double A even, corporate bonds, yet we have a financial regulatory system that seems to want to increase bank capital and increase balance sheet holdings of high-quality collaterals. These things are in opposite directions. You’re encouraging the financial system to hold more high-quality collaterals at the same time you’re taking it away.”

The net result of all this could be that Treasury prices climb and not fall. Gundlach finished by saying. “I really don’t believe the ingredients are there for this great bond rout that everybody is talking about.”

Of course we shouldn’t forget that Gundlach is a bond manager and it’s in his interests to “sculpt” investor behavior in favor of bonds. And not all his predictions have been on target lately, but only a fool would bet against him.

You can watch the full interview here!

 

Todays Other Top Stories

Municipal Bonds

BondBuyer: – Muni calendar shows slow growth. – Municipal bond issuance will stay light in the coming week as the calendar offers little to sate investors’ growing hunger for tax-exempt paper.

Barron’s: – Will the muni rally see spring? – At long last, municipal bonds have had a great month. Don’t get used to it. The muni market bid farewell to a terrible 2013 in which it lost 2.6%, underperforming a broader bond market that lost 2%.

Bloomberg: – Illinois Tollway sets biggest sale since pension fix: Muni deals. – The Illinois tollway agency is set to issue $400 million of tax-exempt bonds in the biggest sale from the state since lawmakers took steps to bolster the worst-funded U.S. state pension system.

MuniNetGuide: – States outspend revenues in 2012. – Earn more; spend less: a formula for financial improvement that is much simpler in concept than in reality, particularly for states against the backdrop of today’s economy.  While states were able to cut back on expenditures in 2012, revenues also declined.  In fact, as in three of the past four years, revenues fell short of expenditures, according to the recently released 2012 Census of Governments: Finance – Survey of State Government Finances.

Palm Beach Daily: – Tax-free bonds may be good buys. – Tax-free municipal bonds, knocked down as much as 3 percent last year, could present attractive values now, many suggest.

 

Education

LearnBonds: – This type of dividend-growth investor should consider fixed income. – In a world in which central banks openly admit a desire to influence prices in a way that causes life to become more expensive for everyone, investments with a high likelihood of growing payouts are absolutely worth considering.  This is especially true for the “buy-and-hold-forever” type of investor.

 

Treasury Bonds

FT: – BoJ’s easing may not compensate for Federal Reserve’s taper. – Axa runs a tight ship in Tokyo. The Japanese arm of the giant French company tries to make so much money from selling insurance and other services that it doesn’t have to worry about margins on its Y5tn ($48bn) portfolio of investments, more than half in government bonds.

Reuters: – Speculative net shorts in U.S. T-note futures rise. – Speculators’ net bearish bets on U.S. 10-year Treasury note futures rose in the latest week, according to Commodity Futures Trading Commission data released on Friday.

Reuters: – U.S. bonds flat after weaker-than-expected housing data. – U.S. Treasuries prices were little changed on Monday, paring earlier losses after data showing sales of new U.S. single-family homes fell more than expected in December.

 

High Yield

Forbes: – Forest laboratories sets $1.8B high yield bond deal backing Aptalis buy. – Drugmaker Forest Laboratories has entered the market this morning with a $1.8 billion, two-part senior offering to fund the acquisition of Aptalis. The deal, comprising five-and seven-year bullet notes, comes off the shadow backlog and will be pitched in a 10:00 a.m. EST conference call, with pricing this afternoon, sources said.

Jeroen Jongbloed: – High growth and strong balance sheet make Honeywell a buy. – On January 24th Honeywell released its 4th quarter and full-year results for 2013. Revenues are up by 4% compared to FY2012, at $39.055 billion. Earnings per share were up by an amazing 11%, reaching $4.97. The company aims to increase its EPS by another 8%-12% in fiscal year 2014. Does this mean Honeywell is a good stock to own at the current price of $88.47? This is the question I will be trying to answer in this article.

Forbes: – Dell leveraged loans, high yield bond soften in trading on 3Q results. – Debt backing Dell is continuing to drift lower today after the PC maker released third-quarter results to its investors, adding to losses posted late last week amid choppy market conditions.

 

Emerging Markets

Examiner: – What’s behind the panic with emerging markets. – A weak PMI report from China sent markets tumbling Thursday, by Friday the news spread around the rest of emerging markets around the globe. The PMI or Purchasing Managers Index is a survey of manufacturing in the private sector. Some of the findings the index highlights is how many goods are being produced and how many new orders are coming in. The results of this months Chinese survey came in at 49.6 or sub 50. The sub 50 is notable because that is the benchmark indicating that there has been a contraction in activity for the month.

 

Catastrophe Bonds

Insurance Business: – Reinsurer places $100mn bond for catastrophe losses. – JLT Towers Re, the newly formed reinsurance business that grew from JLT Reinsurance Brokers’ acquisition of Towers Watson’s reinsurance business, is getting on the map with a $100mn catastrophe bond placed to cover Cincinnati Insurance Co.

 

Investment Strategy

Donald Van Deventer: – 20 best value bond trades. – On January 23 in the U.S. bond market, there were 34,551 bond trades in 5,146 non-call fixed rate corporate bond issues representing $12,013,821,730 in notional principal. Which 20 trades were the best trades of the day, and how do we decide the answer to that question? We answer those questions in this note.

Kiplinger: – Time to sell your Pimco funds? – Mohamed El-Erian’s departure leaves Bill Gross alone at the top of the mutual fund giant. You may do better with bond funds elsewhere.

 

Bond Funds

Chillicothe Gazette: – Keep more of earnings with tax-free bonds. – For many investors, taxes have been climbing. Obamacare surcharges, capital gains tax increases and other tax changes have caused many Americans to pay more in taxes than they have in recent years.

TheStar: – Why ETFs have lost ground to mutual funds: Roseman. – Exchange-traded funds grew quickly until 2013. Mutual funds regained their momentum last May, as investors worried about higher interest rates.

Morningstar: – How our top-rated funds have performed. – Each month in Morningstar FundInvestor, I share our batting averages with you. Batting averages tell you what percentage of our highest-rated funds outperformed their peer groups.

CFA Institute: – The hidden risks of bank loan funds. – Retail investors are currently pouring money into “bank loan” funds at a record rate, and the longer term implications are cringe worthy.

Reuters: – Bond trading stings Goldman, Citi in fourth quarter. –  Goldman Sachs Group Inc and Citigroup Inc suffered a steep drop in bond trading revenue in the fourth quarter, a stinging blow for two banks long seen as stalwarts of fixed income markets.

 


 

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