NEW YORK (Reuters) – Head of DoubleLine Capital LP Jeffrey Gundlach, and one of the most closely watched bond-fund managers, said via a company webcast on Tuesday bond yields likely will not move much higher and the 10-year Treasury yield will end the year at 1.7 percent.
Gundlach said the U.S. Federal Reserve’s monetary stimulus will keep the 10-year Treasury yield from rising above 2.3 to 2.35 percent. His latest prediction for the 10-year Treasury yield at year end is slightly above his March prediction of 1.63 percent.
“I don’t think that you are going to be out of the woods with quantitative easing and I don’t think that bond yields are going to move much higher,” Gundlach said in reference to the Fed’s purchases of $85 billion per month in Treasuries and agency mortgage securities.
“I think it’s a horrible time to be exiting bonds,” he added, in light of his prediction that prices will not fall much further.
The Fed is implementing monetary stimulus, also known as quantitative easing, in an effort to spur hiring and lower long-term borrowing costs. Fed Chairman Ben Bernanke signaled on May 22 that the central bank could scale back its purchases at one of its “next few meetings” if the economy looked set to maintain momentum.
Bernanke’s remarks, along with the release on the same day of minutes from the Federal Reserve’s last meeting saying that the central bank may scale back easing as early as June, has led to a selloff in bonds that has pushed the 10-year Treasury yield to 2.15 percent at the close of trading on Tuesday. Yields rise as prices fall.
Gundlach, the chief executive and chief investment officer of Los Angeles-based DoubleLine, said the Fed is likely to keep stimulus in place since rising interest rates would hurt stocks and other financial markets.
Gundlach, whose flagship DoubleLine Total Return Bond Fund has over four percent of its assets in 10-year Treasuries, said he is also starting to like long-term Treasuries at current prices. The 30-year Treasury bond yield is currently 3.31 percent.
Gundlach, who told Reuters in mid-May that Japan’s Nikkei average could hit 17,000 by year-end, said the Japanese stock market has already hit its peak for the year. The index rose to a 5-1/2-year peak of 15,942.60 on May 23 before falling 6.6 percent to its current level of 13,533.76.
While Gundlach said Japanese stocks will not likely hit new highs, he added that now is not a good time to exit the stocks, and that they will likely not “collapse” further.
Gundlach, whose firm oversees roughly $60 billion in mostly fixed-income assets, also said the price of gold could fall to $1,280 an ounce. The price of spot gold was $1,397.34 an ounce in intraday trading Tuesday.
Gundlach’s DoubleLine Total Return Bond Fund has earned a three-year annualized return of 10.08 percent through May, besting all other intermediate-term bond mutual funds over that period, according to Morningstar.
The fund has earned a return of 1.42 percent so far this year, above 95 percent of peers. The fund fell 0.84 percent in May amid a widespread selloff in bonds, but that performance was still better than 95 percent of peers, Morningstar said.
(Reporting by Sam Forgione- Editing by Jennifer Ablan and Diane Craft)
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