DoubleLine Capital founder Jeffrey Gundlach has made a name for himself through his bond investments and is now often referred to as the “bond king.” But with his focus on fixed-interest securities, the investor didn’t always have it easy, as he recently revealed. He is all the happier about the current situation on the US bond market.
• Gundlach thinks back to 2016: the bond market was in the “dungeon”
• Situation has changed fundamentally since then, Gundlach “much happier”
• Gundlach: “Now you can buy a T-Bill and relax”
The development of US yields is currently setting the pace on the stock markets. After the yields on ten-year Treasuries reached 4.82 percent at the beginning of October, their highest level since 2007, they are currently only slightly lower. For bond king Jeffrey Gundlach, this is a reason to be happy. He is currently “much happier” than he was a few years ago, he said at the Grant’s Investment Conference in New York, according to Financial Review.
Gundlach: Bond investors can sit back and relax at the moment
During the conference, Gundlach recalled the situation in 2016, when as a bond investor he had no reason to celebrate. At that time, US key interest rates were in a range of 0.25 to 0.5 percent and the returns that could be achieved by investing in bonds were correspondingly low. For example, the yield on ten-year US government bonds was 1.5 percent in mid-2016. According to Gundlach, in order to achieve an annual return of five percent with a bond portfolio, one was forced to buy a junk bond index and also leverage it. At the same time, one had to hope that there would be no default by the bond issuers, said the DoubleLine CEO according to “Financial Review”. The bond market was literally stuck in a “dungeon”.
But now the situation has changed fundamentally. For a long time there was no real alternative to stocks if you wanted to make money on the stock market, but the US Federal Reserve’s sharp interest rate increases since spring 2022 have ensured that bonds are now attractive again. As a result, bond yields have also risen sharply. “Now you can buy a T-Bill and relax,” said Gundlach, according to “Financial Review.”
Boring bonds become stars
T-Bills, or Treasury Bills, are US government bonds with a short term of up to one year. They are actually one of the more boring investments because they are issued by the US Treasury Department and backed by US creditworthiness and are therefore very safe. Since they are only short-term bonds, they are also less sensitive to interest rate fluctuations and therefore have little interest rate risk. At the moment, however, these “boring” securities with a term of one year achieve high returns in the range of 5.405 percent – and with almost no risk. The annual return for six-month T-Bills is around 5.565 percent (as of October 13, 2023). Investors can simply park money there and sit back – like Gundlach apparently does.
So the situation has turned into the opposite since 2016 and life is no longer difficult for bond investors, but for equity investors. Because of the high returns on the bond market, stocks that are riskier compared to US government bonds are becoming less interesting. As a result, many investors divert money from the stock market to the bond market. According to the “Financial Times”, Jeffrey Gundlach also expressed pity for the “poor” stock investors – although with a healthy pinch of sarcasm. “It is [jetzt] exciting to be a bond investor. […] In parts of the securitized market where there will be no defaults, you can get 7.5 percent from variable-rate triple-A assets,” the bond expert enthused, according to the business magazine.
The top investor does not expect an end to the rise in yields on US bonds. “The yield has to go much higher in this context,” he said at the New York conference, according to Financial Review. He expects that the average interest rate on US government debt will climb from the current three percent to six percent.
Editorial team finanzen.net