Gundlach Says Yield Curve Inversion ‘Harder’ With Rates So Low

(Bloomberg) -- Jeffrey Gundlach, chief investment officer of DoubleLine Capital, said it’s going to get “harder and harder” to invert the U.S. yield curve at this level of interest rates.

“We might not get a real inversion because rates are so low,” Gundlach said Tuesday during a client event in New York.

An inverted yield curve is widely seen as an indicator that the economy is within a couple years of a recession. The premium of the 10-year Treasury yield over the three-month bill rate on Tuesday shrank to less than three basis points, after dipping in March into negative territory for the first time since 2007. Benchmark 10-year yields traded at roughly 2.45 percent on Tuesday.

Interest rates are likely to become more volatile and the chances of recession before next year’s presidential election are increasing as the national debt soars, Gundlach said Monday at a separate event. He recommended buying rate volatility on long-term U.S. Treasuries through a put-call straddle on the iShares 20+ Year Treasury Bond exchange-traded fund, according to a presentation he gave at a hedge fund conference.

Los Angeles-based DoubleLine managed more than $130 billion as of March 31, mostly in fixed-income assets.

In other comments Tuesday, Gundlach:

  • Reiterated his concerns about the large amounts of corporate debt in the market
    • Asked about what catalyst would freeze the credit market, the money manager said “the corporate bond market will really have a problem when you see negative GDP.” Citing a quote by Warren Buffett about seeing who’s naked when the tide goes out, Gundlach said, “It’s kind of a nude beach out there.”
  • Again predicted a decline in the U.S. dollar
    • “If we didn’t have the luxury of being the reserve currency,” the greenback would be much weaker, he said.

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