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Jeff Gundlach Chief Investment Officer of DoubleLine Capital said today that deflation has made the U.S. economic environment “different” than during past recoveries, and because of that, he doesn’t expect the Fed to raise rates anytime soon.
Gundlach told delegates at the ETF.com Inside Fixed Income conference in Newport Beach that he will remain invested in the long part of the Treasury curve and that “the dollar is the place to be.”
“Everyone is always saying rates will rise; it is almost comical,” he said, and attributed this mindset to looking at past recoveries as a template for the future, which he says is a mistake.
“We are supposedly entering the tightening cycle years after the recession trough. That is historically unusual, but I still don’t think we are going to see the tightening soon,” Gundlach said.
The deflation that is confounding Fed policymakers is being fueled by several factors including slow wage growth, lack of home buying by millennials, depressed oil prices and importing deflationary forces from Europe, among other factors. He said he sees nothing on the immediate horizon to change these trends.
“The Fed realizes QE doesn’t do much good,” Gundlach said, but the central bank won’t raise rates anytime soon because of this persistent deflation.
Todays Other Top Stories
Learn Bonds: – ECB begins buying asset-backed securities. – This week the European Central Bank begins its new program of buying asset-backed securities and covered bonds. But, things are not over here in the United States. If the slow growth…and possibly deflation…from Europe impacts the United States, then Federal Reserve monetary policy might have to be changed.
WSJ: – California toll road sells $1.4 billion in bonds. – The operator of a struggling toll road in southern California sold about $1.4 billion in bonds on Wednesday, capitalizing on a broad decline in yields that has whetted investors’ appetite for riskier bets.
Bond Case Briefs: – WSJ: What a struggling jail means for investors, small towns. – An article in Wednesday’s Wall Street Journal shows how some cities and states that took on risk to build jails or prisons are hurting after crime unexpectedly fell and the inmate population declined.
Bloomberg: – Atlantic City spiral seen in sale’s junk-like yield. – Investors demanded yields typical of junk-rated debt to buy investment-grade bonds backed by luxury taxes in Atlantic City in a sign of the cost of the seaside community’s downward financial spiral.
GMS Group: – Why municipal bonds are a wise investment solution. – If you’re an investor looking for income and stability of principal, you should consider municipal bonds.
Bloomberg: – IMF finds flaw in bond industry as exiting mutual funds is too easy. – Investment firms made it easy for individuals to plow into infrequently-traded debt in good times. Perhaps they should make it tougher to exit in downturns.
The Economist: – Recent market turbulence may be only a foretaste. – Recent market turbulence may only be a foretaste of what will happen if the world economy deteriorates more significantly, or if central banks decide to tighten monetary policy quickly. Of course, that thought may make central banks even more reluctant to push up interest rates than they are already. Financial markets may thus calm down again in the short term.
The Economist: – Emerging trouble in the future? – Could the hottest trend in investment management be the greatest danger to financial stability? Exchange-traded funds (ETFs)—pooled portfolios of assets that trade on stock markets, usually linked to an index—have grown from a total value of $416 billion in 2005 to $2.5 trillion today. Their rapid growth has left regulators worrying about what might happen if the money that has flowed into ETFs decides to flow out again.
The Economist: – The pendulum swings to the pit. – Politicians and central bankers are not providing the world with the inflation it needs; some economies face damaging deflation instead.
Fortune: – No, regulators did not break the bond market. – When bond yields fall, prices rise. So if you want to blame regulation, all you can say is that it made some people more money than they should have last week.
Reuters: – U.S. bond yields rise as data soothes jitters. – U.S. Treasuries yields rose on Thursday to their highest levels in over a week as domestic and overseas data reduced jitters about a year-end slowdown in the global economy, paring safe-haven demand for low-risk government debt.
Bloomberg: – ‘Humongous’ Treasury future move shows trader didn’t do homework. – The price of 30-year Treasury contracts expiring in June jumped 7.3 percent yesterday, the first day they traded. What sets them apart is they’re the first futures where the U.S. government’s decision to stop issuing 30-year debt between 2001 and 2006 must be accounted for when valuing the derivatives.
Bloomberg: – Aberdeen Asset buys Goldman Sachs bonds as yield premiums paid. – Aberdeen Asset Management Plc bought bonds sold by Goldman Sachs Group Inc. and Morgan Stanley this week after risk aversion pushed up yield premiums.
High Yield Bonds
WSJ: – Junk bonds rally. – A week after a selloff that pushed the price of junk bonds to its steepest decline in more than a year, investors once again snapped up speculative-grade debt. Among the firms that sold new bonds in the high-yield market this month was Constellation Brands, owner of the U.S. distribution rights for Corona beer, which sold two bonds totaling $800 million.
NBC News: – Tananbaum on high yield: Good value in loans. – After Carl Icahn called high yield in a bubble, Steve Tananbaum, GoldenTree Asset Management, discusses investment strategy.
Market Realist: – Analyzing the current opportunities and risks in junk-rated debt. – Higher volatility in markets has its own rewards. Higher volatility often helps in establishing a new price equilibrium, which may be especially true of high-yield bonds. The asset class has seen wide gyrations since late July, even before the global growth crisis blew up a couple of weeks ago. While some analysts have declaimed junk bonds as way overvalued, others see opportunities. We’ll analyze the outlook for junk bonds in the coming sections of this series.
Seeking Alpha: – Chart of the day: Junk Bonds as an early warning. – Today’s Chart Of The Day is a look at the level, and movement, of “junk bond yields” as they relate to the broader stock market. While the media prefers to use a more “marketing friendly” term of “high-yield bonds,” the reality is that these are debt securities issued by firms with the substantial levels of credit and default risk.
ETF Daily News: – Goldman Sachs Group Inc (GS) is buying Carl Icahn’s “high yield bond bubble”. – Despite Carl Icahn’s warning that ”the high-yield bond market is in a major bubble that’s gonna burst,” Bullard’s “QE4″ comments sparked Goldman to add US junk bonds and Aberdeen says selling EU and buying US corporate debt “is the trade that kind of screams at you right now.”
Income Investing: – High-Yield default rate down to 1.7%, should stay low – Moody’s. – Of all the things that make high-yield bonds prone to the occasional market shock, defaults really aren’t one of them for the moment or for the foreseeable future. A Moody’s report out today says the default rate among U.S. companies with speculative-grade ratings fell to a mere 1.7% at the end of the third quarter.
Reuters: – Venezuela says to avoid costly foreign borrowing. – Venezuelan President Nicolas Maduro said on Wednesday that the South American country would avoid more borrowing on international markets due to rising costs as a result of worsening credit risk perceptions.
Investors.com: – Three hot bond ETF trends batted around at conference. – Three hot trends are coursing through the bond world, according to experts at ETF.com’s Inside Fixed Income in Newport Beach, Calif., on Wednesday. Here’s what they are.
MSN Video: – Time to sell overvalued Treasuries, add to high yield holdings. – Investors should consider reducing their Treasury holdings after the run up this year and increase their high yield exposure after the recent selloff, said Heather Loomis, West Director of Fixed Income for JP Morgan Private Bank.
Business Standard: – Time right for long duration debt funds. – Income funds of average maturity of less than five years will give benefit of rally in both corporate bonds and G-Secs.
ETF Trends: – More wealth managers adapt strategies into ETF offerings. – Registered investment advisors are beginning to take a closer look at exchange traded funds as an efficient vehicle to manage client assets and attract a wider investor audience.
Dealbook: – New manager of Pimco’s flagship fund defends european bond holdings. – In an environment of growing concern about trading conditions in global debt markets, the new manager of the largest bond fund in the world – Pimco’s Total Return Fund – defended his outsize holdings in European government bonds and other high-yielding securities at an investment conference on Wednesday.
ETF Trends: – Hedge funds love these ETFs. – Led by the Vanguard Total Bond Market ETF (NYSEArca: BND), eight of the 25 most-owned ETFs by hedge funds are fixed income ETFs.
Zacks: – 3 REIT ETFs holding up despite market storm. – The U.S. stock markets have seen quite a rocky start to the final quarter of the year with all the three major equity market indices – S&P 500, the tech laden Nasdaq and the blue chip Dow Jones Industrial Average – trading in the red from the quarter-to-date look.
WE SHOULDN’T BE CONCERNED ABOUT A BOND APOCALYPSE, PIMCO’S MATHER SAYS. The bond apocalypse is contained?
— zerohedge (@zerohedge) October 22, 2014
— Scott Skyrm (@ScottSkyrm) October 23, 2014
A great rotation, with bonds the winner! Past week seen $10.6bn redeemed from US equity ETFs, while $5.9bn flowed into FI says ConvergEx.
— michael mackenzie (@michaellachlan) October 23, 2014