Gundlach: Beware of Higher Rates and Inflation
Economic indicators suggest that the 10-year Treasury yield could double to nearly 2%, according to Jeffrey Gundlach, and the U.S. could face higher inflation over the next several years.
Gundlach spoke to investors via a webcast, which he titled “No End in Sight,” and the focus was on his flagship total-return fund (DBLTX). Slides from that webcast are available here. Gundlach is the founder and chairman of Los Angeles-based DoubleLine Capital.
Since the onset of the pandemic, the yield on the 10-year Treasury bond has not exceeded 1%, although it nearly got there in late May and was at 92 basis points when Gundlach spoke. He warned that if the yield breaches the 1% “resistance level,” it could easily rise to 2%.
In that scenario, the only thing that could arrest further increasing rates would be yield-curve control, whereby the Fed would purchase longer-dated bonds, according to Gundlach.
Moreover, he said, fundamentals do not support today’s Treasury rates. The performance of cyclical/defensive equites and the copper/gold ratio say the 10-year yield should be 2%, according to Gundlach.
He said that now would be a good time for first-time home buyers to take a mortgage, while rates are low.