Gundlach says the lows are in for bonds

Junkster

Jeff Gundlach, about the only bull on 10 year bonds at the beginning of 2014, was interviewed today on CNBC. The takeaway is Yellen doesn't want to raise rates and they should remain stable for the rest of 2014. He said he was looking for 2.20 to 2.80 a few months back and we are now at the mid-point of that. I believe we hit 2.31 intraday a little while after that call so pretty good on his part once again. Tucked in his interview was he said the bottom for long term rates had already been hit and they will now rise but at a VERY, VERY slow clip. I respect Gundlach but never listen to the talking heads because in the end the only way to win at this game is to listen to the action of the market and act accordingly. I certainly wasn't a bull at the beginning of 2014 and believed like everyone else that rates had only one way to go and that was up. But the action at the beginning of January 2014, especially in junk muniland proved me wrong so I acted accordingly. I haven't a clue where the market - stocks or bonds - will be at the end of 2014 (opinions and predictions will only kill you) but will let the market dictate my actions.

Edit: I sure haven't liked the action of bonds recently, mostly the 10 year, especially in light of Friday's employment report. So will remain diligent in case we get some unexpected spike upward.

Ted

@MFO Members: Here is Gundlach interview.
Regards,
Ted
http://video.cnbc.com/gallery/?video=3000309118

Junkster

Thanks Ted, I wanted to post a link but the only link I saw was the one you posted and that was only a part of the entire interview. Somewhere tucked in the entire interview was some comment he made about how he thought rates had hit their bottom for the year but would only rise very slowly. I wanted to verify that comment but so far haven't seen the entire interview posted anywhere.

catch22

@Junkster

Agree, too much sideways in most bond areas recently (excluding the HY muni area you've written about). The only blip of value was when things were a bit more rough with the Russian moves.
'Course, the big question is where does the "big" money run to, to hide for awhile???

Thank you for continuing to be here.
Take care,
Catch

AndyJ

CNBC is showing the direct quote below from Gundlach on the subject:

U.S. 10-year bond rates will remain between 2.2 and 2.8 percent for the rest of the year, bond guru Jeffrey Gundlach told CNBC on Tuesday.

"The low in U.S. rates was in July 2012, so U.S. rates are rising. They're just rising very slowly and I think that's going to remain the case for a couple more years," Gundlach, CEO of DoubleLine Capital, said ....

That July '12 low was ~ 1.40 on the 10yT, way below the recent low of ~ 2.33. He continues to use the 2.2-2.8 range for the rest of the year that he's been talking about for months, so, with the rate higher than 2.2 now, he isn't saying the low is necessarily in for this year. Essentially there's nothing new from JG here.

heezsafe

There is a DoubleLine webcast scheduled for this afternoon. Gundlach will be the presenter. I'm sure we'll be getting quite a bit more than soundbites from him then. I haven't liked the recent action either but don't know what, if anything, it means; maybe he'll have some hunches about it.

"Ya can't trades the markets ya wish for, ya have to trades the markets ya have." I suspect Big Money is trying to weaken our resolve and scare us out of all our bonds. Sorry, Banksters, you can't have them, you'll have to recapitalize your off-balance sheet Rule 157 losses some other way.

OregonDan

Mr. Gundlach mentioned he will be hosting a webcast today at 4:15 pm eastern, entitled "Total Return and Core Fixed Income". If you're interested in hearing more from him, there's still time to register: Link https://event.webcasts.com/starthere.jsp?ei=1026698

Charles

Thanks. I will listen in. c

rjb112

Here's where we are right now on the 10-year Treasury yield:

Junkster

http://blogs.barrons.com/incomeinvesting/2014/09/09/gundlach-treasury-yields-depend-on-italian-spanish-french-yields/?mod=BOL_hp_blog_ii

I got in too late to listen to his webcast but guess the above sums up his feelings on Treasuries. Another link shows he said he is not afraid of junk corporates here and added a bit. I am real afraid of junk corporates. I'm not a chartist, but talk about a perfect double top in the Merrill Lynch High Yield Master II Index last week and it has been all down since.

JohnChisum

I'm thinking the webcast will be available for replay shortly.

AndyJ

JG upped the HY corp stake in the core fund from 2% to 5%, so not exactly a ringing endorsement. Junkster, I follow the HY spread chart on FRED, and it's now bounced up off the 3.8% level that's been a top or bottom basically every time the spread's hit it this year, so the same thing you're seeing on the yield chart.

Hope those who listened caught Gundlach's comment about the sweet spot in bonds being funds that have higher yield : duration ratios, which is essentially the same thing the Pimco-ites and other sources (e.g., Sam Lee at M*) have been saying in different terms for a while. Shorter but not supershort duration, lower end of IG and upper end of non-IG fits that bill apparently. JG showed a chart that IG corporates are the most overvalued they've been in a lo-oo-ong time.

BobC

OSTIX is a no-brainer for folks looking for decent yield but very low volatility. Current duration is less than 2.0 years. Manager Carl Kaufman's track record is one of the best. With only150 holdings and only one-fifth the size of DLTNX, this is a core hold for most client accounts. The fund stays under most radars, and Mr. Kaufman prefers to stay out of the limelight.

Crash

Sounds like a keeper. I'll hang onto this info.

rjb112

BobC said:

OSTIX is a no-brainer for folks looking for decent yield but very low volatility. Current duration is less than 2.0 years. Manager Carl Kaufman's track record is one of the best. With only150 holdings and only one-fifth the size of DLTNX, this is a core hold for most client accounts.

@BobC: I think a fundamental question about junk bonds and OSTIX is:

Does it properly diversify an equities heavy portfolio? Do these bonds play the typical role that people want bonds to play, that is, to diversify equities? Articles I read written by Larry Swedroe and William Bernstein strongly favor only very high quality bonds, saying that below investment grade bonds do not provide proper diversification and risk reduction for equities.

Perhaps what they are saying is that someone with a 100% bond portfolio might gain valuable diversification from junk bonds. But someone using bonds for what John Bogle calls "ballast" and "an anchor to windward" might need only investment grade bonds for this purpose.

If junk bonds tend to perform somewhat similarly to equities, how are they providing the diversification? Yes, I know these are short term junk bonds, but the general principle is still there.

Appreciate your comments on this Bob.

thanks.

Crash

Granted, OSTIX is a different sort of animal. And I know M* sucks it. Yet M* puts DLTNX and DLFNX in the same Interm. Term Bond category. Look:

YTD, 1-month, 1-year, 3-year
DLTNX 4.81 -0.07 6.35 4.64
DLFNX 5.48 0.27 7.92 4.29

DLTNX is getting VERY crowded. It's been getting that way for quite some time. That's ONE reason I chose the other. I couldn't do for myself what JG is doing for me. Still, a lot more people have chosen to go with the other product. I habitually go and look to compare DLFNX with DODIX.

DODIX 4.56 0.07 7.18 4.49

So, given 3 year compounding, DODIX wins by a hair or two.