Jeff Gundlach: don't bet on lower interest rates

published 30 September 2019

CEO of DoubleLine Capital Jeff Gundlach © Matt Winkelmeyer/Getty Images

A recent spike in the interest rates on overnight loans between financial institutions (known as the "repo" market) has forced the Federal Reserve to inject billions into US money markets this month. It doesn't spell "imminent disaster", says Jeff Gundlach (sometimes known as "the bond king"), the founder and chief investment officer of DoubleLine Capital. However, it does suggest that the Fed might eventually start expanding its balance sheet again "QE lite" as Gundlach puts it (QE is short for quantitative easing, whereby the Fed prints money to buy bonds orother assets).

Gundlach made the comments in a webcast for his $54bn DoubleLine Total Return Bond Fund earlier this month, reported on Bloomberg. Despite his relative calm about the situation in repo markets, Gundlach is anything but bullish. He reckons there is a 75% chance that the US will be in recession before the November 2020 presidential election, and that there is virtually no chance of a US-China trade deal being done before that point.

Yet even with this gloomy prognosis, "it's not a great idea to be betting on lower interest rates", he argues, pointing out that in the past, QE has "actually been correlated with the rising in long-term interest rates". He reckons the ten-year US Treasury yield has already hit its low for the year, having been driven to below 1.5% earlier in the month (it's now sitting at just under 1.8%) due to "panic buying". He also expects the US dollarto decline.