If there is any consensus on what has been an interesting week for markets, it’s that bonds are likely to recover. In what appears to be a good time to buy, many leaders from the Fed and from the market have warned against dumping bonds too quickly, as rising yields could have simply been an overreaction.
Jeffrey Gundlach joins Pimco’s Bill Gross in telling investors that bonds are still a good bet, noting that the yield fell six basis points on Thursday, returning to 2.475 percent after a startling spike to 2.66 percent last week. Attempting to calm investors during his webcast, he said, “I do think the worst is over. Now we have corroborative evidence from the markets.”
He furthered his argument for treasuries by comparing them to gold, which has plummeted recently. Gold hit a three-year low this morning when it dipped below $1,200 an ounce. “Gold looks like death,” he said.
Earlier in the week Gundlach thought that rates might crawl up a bit in July before coming back down. Now with Thursday’s decline, he’s set on lower rates. The famed bond investor also told the WSJ this week that deflationary fears, or at least, lack of worry about inflation, should make bonds that much more appealing to the potential investor.
“There is a disconnect between rising bond yields and falling inflation concerns. It makes bonds doubly attractive. Investors would probably deeply regret exiting bonds and moving to cash,” he said.
Gundlach is still a fan of emerging markets, pointing to bonds there as a prime place to get returns, making him a bit of a “contrarian.” Mortgage rates have been the rise as well following the spike in treasury and 30-year bond yields, prompting him to also express optimism for mortgage-backed securities. ”We have been buying modestly in recent days and will probably increase exposure when the market settles down. A few months ago if you bought MBS, you got a yield of 1 percent. Now you can buy agency MBS of 4 percent,” he told the WSJ.
When it came to public bonds, Gundlach suggested closed-end municipal funds, while also noting that high-yield bonds are rebounding as well. He commented also that he felt treasury yields could not rise much more without buckling the U.S. economy, saying that they would be substantially lower by year’s end.
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