Jeffrey Gundlach highlights seizures in the corporate bond market as problematic in his latest interview with CNBC.
Jeffrey Gundlach, self-made billionaire investor founder of Doubleline Capital reckons that the weakening corporate bond market is moving under investors’ radar.
Jeffrey Gundlach, the bond king of fixed-income investments notes the junk bond market widening out, similar to what it did during the fourth quarter of 2018 and it is continuing to widen out massively today.
“Jeffrey Gundlach highlights seizures in the corporate bond market as problematic”
Jeffrey Gundlach highlights seizures in the corporate bond market, a market which has exceeded 10 trillion USD is experiencing signs of illiquidity, with a dwindling number of corporate bond investors
Corporates’ inability to raise capital on the bond market is how Jeffrey Gundlach highlights seizures in the corporate bond market.
“Investment-grade corporate bond market was unable to issue new issue bonds for seven days” said Jeffrey Gundlach.
Jeffrey Gundlach believes that part of the Fed’s motivation to cut rates was to try and prevent illiquidity in the bond market, which is already showing signs of trouble as the Junk bond high risk fixed investment spreads widen.
The risk-off sentiment, triggered by COVID-19 has created speculative demand for haven assets which could explain why Jeffrey Gundlach highlights seizures in the corporate bond market
Unprecedented demand for the 10-year treasury pulled liquidity from corporate bonds, that sent the 10-year treasury yields to record lows and corporate bond yields higher, bearing in mind the inverse relationship between bond price and their corresponding yields.
“Investment-grade corporate bond market was unable to issue new issue bonds for seven days”
“Corporate bond yields going up as treasuries yields are falling,” said Jeffrey Gundlach.
But higher corporate bond yields make it more expensive for companies to service debt and that could be problematic in this challenging business environment, particularly in the wake of COVID-19.
No one is under any illusion that Q1 corporate earnings are going to be awful, hence the recent stock market crash as stock investors ran to the exit.
“Business activity is likely to contract so the Fed 50 basis point rate cut is justified” said Jeffrey Gundlach.
Airlines are in free-fall for good reason and small business activity is going to contract. It is foolhardy to think any other that this is going to take a short term major hit to economic growth,” he added.
But on an upbeat note, Jeffrey Gundlach thinks grocery-store sales will see a short term spike in sales.
But while Jeffrey Gundlach supported the recent Fed cut, given a challenging business environment, he also said he didn’t like the way it was done. “The Fed in its most recent conference took a victory lap talking about how they finally reached a stable place in policy and they could be on hold for the foreseeable future, even the Fed told the entire world that we are in a good place. I thought that was a bit of hubris at the time,” said Jeffrey Gundlach
“The Fed’s 50m basis point panic rate cut is typically followed by another rate cut” – Jeffrey Gundlach
Jeffrey Gundlach highlights seizures in the corporate bond market saying that the Fed panic rate cut was made in reaction to even the investment-grade bond market tightening
Jeffrey Gundlach thinks more Fed rate cuts are on the way.
“The Fed’s 50m basis point panic rate cut is typically followed by another rate cut” he said.
But don’t hold your breath, bearing in mind that the Fed is a private banking cartel and, lower Fed fund rates are a drag on banking profits.
Banks can’t make profits when their product credit (loans) keeps falling and the 10-year yield falls below 1%. BoJ and the ECB both implemented zero and negative interest rate policies in a crisis and the banking sector under-performed in Japan since the Asian crisis and in Europe post-2008 financial crisis.
In short, I don’t agree with the view that the Fed will go to zero interest rates for the reasons outlined above. Moreover, the world’s reserve currency the USD needs to remain stable as it is the bedrock of global finance and international trade.
Jeffrey Gundlach highlights seizures in the corporate bond market, meanwhile, he notes that Treasuries are not a place to make money anymore.
Treasuries “are a place not to lose money” said Jeffrey Gundlach.
“I think short rates are going lower but we are starting to see steeping yield curve” he added.
“I feel it is a certainty that gold is going to an all-time high against all currencies” – Jeffrey Gundlach
“With 10-year yields so low, you don’t make any money regardless, it just provides return-free risk. I think you are better off in cash” said Jeffrey Gundlach.
“I think gold is what you should own,” he added.
But what is stopping the private banking cartel from rigging the gold market to the downside, as they did for a decade, to keep investors in their fiat paper system?
“I feel it is a certainty that gold is going to an all-time high against all currencies” said Jeffrey Gundlach.
But that is assuming the banking gang will sit idly by and watch their paper empire crumble. I don’t think so.
When investors chose gold over US treasuries their game is over.
Jeffrey Gundlach highlights seizures in the corporate bond market and he is watching initial claims for US unemployment for signs of problems in the economy
“If unemployment claims go above 5 years moving average you are done. You can almost put a fork in the economy. If this slow down of a small business, travel leisure and the likes sustains it will probably lead to higher unemployment,” he said.
“When the view of the present joins the view of the future in weakening that is definitional of a recession,” he added.
Jeffrey Gundlach highlights seizures in the corporate bond market and he notes that price action in the bond market and the Fed’s reaction to it is very similar to past slowdowns.
“The epicenter of trouble will be in the corporate bond market” he said.
“Emerging weakness in corporate bond market needs addressing,” added Jeffrey Gundlach.
Jeffrey Gundlach doesn’t believe the Fed will go to negative rates, which he said would lead to capital destruction.
See Jeffrey Gundlach highlights seizures in the corporate bond market full interview.