NEW YORK Jeffrey Gundlach, a widely followed investor who oversees DoubleLine Capital, said in an interview on Monday his firm had purchased “lots of Treasuries and Ginnie Maes” on Friday, ahead of new developments in the Greek and Puerto Rico crises.
The U.S. Treasuries market rallied on Monday, with yields falling to one-week lows, as a breakdown in talks between Greece and its creditors stoked bets Athens would default on its debt.
“The risk-reward set-up was favorable,” said Gundlach, who is referred to as the new “King of Bonds” for his series of prescient investment calls. “The 30-year Treasury went to a new high yield and no other part of the curve did. This was exactly the opposite of what happened at the low in yields in January.”
The 30-year bond US30YT=RR was up on Monday more than 2 points in price for a yield of 3.101 percent, down 15 basis points from Friday.
Gundlach said he purchased Treasuries and Ginnie Mae mortgage-backed securities because even if yields had accelerated higher, the view was that high-yield “junk” bonds and Emerging Market debt would do worse than Treasuries.
“Also, we had significantly outperformed quarter-to-date, having been defensive on rates and the thesis was no longer as compelling with rates up so much,” he added.
Gundlach said he knew to purchase long-duration assets such as Treasuries and Ginnie Maes because the Shanghai Stock Exchange Composite Index (SHCOMP) was “signaling trouble by collapsing after blowing off to the upside a la the Nasdaq back in 1999/2000.”
Gundlach, who said in May that he purchased some Puerto Rico pension payment-backed bonds, also told Reuters on Monday he will look to buy more of that municipal debt if the price is attractive. “But timing is everything,” he said.
Gundlach argued that he favors Puerto Rico pension payment-backed munis because the government is unlikely to default on these securities despite their poor legal protection because they are held mostly by local residents.
Even if there is a restructuring, their cheapness — the 2039 pension bond last traded at just 41.5 cents on the dollar — offers some cushion. “I know it is not for everyone but it is one of the more interesting plays,” Gundlach said.
The Los Angeles-based DoubleLine Capital had $73 billion in assets under management as of March 31.
(Reporting by Jennifer Ablan- Editing by Bernadette Baum and David Gregorio)
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