NEW YORK (Reuters) – Jeffrey Gundlach, the billionaire chief executive of DoubleLine investment firm, said in a pre-election webcast on Monday that he is bearish on long-dated bonds like the 30-year Treasury.
The 30-year yield <US30YT=RR> has risen about 214 basis points since Federal Reserve Chair Jerome Powell announced in late August that the central bank would allow inflation to run higher for a period in order to average the central bank’s target rate of 2%.
On Monday’s webcast alongside David Rosenberg, chief economist and strategist at Rosenberg Research, Gundlach said he was skeptical of the value of long-dated bonds, but that investors were still expected to hold them to hedge against the risk of deflation.
Longer-dated bonds are sensitive to inflation expectations as rising consumer prices can erode their value.
In a tweet on Friday https://twitter.com/TruthGundlach/status/1322288407293366276, Gundlach noted that since August the 30-year bond has been rising at an annual rate of 200 basis points. If that trend persists, he said, the bonds’ year-over-year return in August 2021 will be approximately minus 35%.
Gundlach is not alone in his skepticism. Speculative short positions in the 30-year bond have in October twice hit record highs, according to Commodity Futures Trading Commission data.
Investors should however be protecting against inflation in their portfolios, said Gundlach, and said that Bitcoin and gold were good hedges against that risk.
Gundlach, who predicted Donald Trump’s victory in 2016, believes the president will be re-elected on Nov. 3, though he has less conviction this time than previously.
(Reporting by Kate Duguid; Editing by Aurora Ellis)