Bond king Jeffrey Gundlach with recession warning: That’s why he expects a US recession in the first half of 2024

• Jeffrey Gundlach warns of an impending economic slowdown in the USA
• Spread between two- and ten-year Treasuries is narrowing again
• Gundlach: A slightly higher unemployment rate would mean a recession alarm

As early as April 2023, Jeffrey Gundlach, the CEO of the investment manager DoubleLine Capital, warned that there would be a recession in the USA in a few months. All that was needed was a higher unemployment rate, the investor said at the time. So far, however, the US labor market has been robust and the unemployment rate was recently at a low 3.8 percent. There has also been no US recession so far. Nevertheless, Gundlach sticks to his warning – and recently even made it more precise. He recently said in an interview with “Fox Business” that he expects a US recession in the first half of 2024.

Jeffrey Gundlach announces recession warning

According to Gundlach, several traditional macroeconomic indicators would currently point to a weakening US economy. Specifically, he told “Fox Business” the unemployment rate, which has reached a plateau, and the yield curve on US bonds, which continues to be inverted. According to the bond expert, the latter now deserves particular attention, as the spread between two- and ten-year US government bonds has recently narrowed significantly and the yield curve is therefore quickly de-inverted. “Suddenly short-term interest rates start to be relatively lower than long-term interest rates. And that’s happened in a way that’s pretty convincing that we should see economic weakness in about the first half of next year,” the investor told the US broadcaster.

Jeffrey Gundlach also repeated this warning on the short message platform X, formerly Twitter, and said that everyone now had to switch from “recession observation” to “recession warning”. If the unemployment rate increases even minimally, a “recession alarm” is announced. He therefore recommended that investors buckle up.

The US Treasury yield curve is de-inverting very rapidly. Was at -108 bp a few months ago. Now at -35 bp. Should put everyone on recession warning, not just recession watch. If the unemployment rate ticks up just a couple of tenths it will be recession alert. Buckle up.

– Jeffrey Gundlach (@TruthGundlach) October 4, 2023

A shift in the bond market could mark the beginning of a recession

In recent weeks, yields on long-term US Treasury bonds have reached multi-year highs as investors increasingly expect the US Federal Reserve to keep interest rates at their current high levels for an extended period of time or even raise them further. As a result, the gap between the yields for short-term and long-term Treasuries has narrowed somewhat, as the attractiveness of longer-term bonds has increased. However, the yield curve remains inverted, meaning short-term bonds offer higher returns than long-term bonds, although the inversion is no longer as pronounced as it was recently.

As “Business Insider” reports, citing data from the London School of Economics, the inversion of the yield curve was a harbinger of every US recession since 1969. However, the recession always only occurred shortly after the curve had de-inverted again. Signs of such a change can currently be seen – and are interpreted by Gundlach as a sign that a US recession is on the way.

Higher unemployment rate as a death knell

Bond king Gundlach is already seeing symptoms of stress in all areas except the labor market, as he told Fox Business. “The only thing that remains is employment. It is above last year’s average, which is a reason to pay special attention to it,” said the investor. “If the unemployment rate rises by half a percent or more from its low point, there has always been a recession,” the DoubleLine CEO continued. Therefore, he probably expects an economic slowdown in the first half of next year – and when asked by the moderator, he added: “I think a recession is what I mean.”

Editorial team finanzen.net