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HomeEconomyGundlach's Gambit: A Bullish Take on Long-Dated Treasurys Amid Recession Buzz

Gundlach’s Gambit: A Bullish Take on Long-Dated Treasurys Amid Recession Buzz

You’re sifting through your investment options, and the economic tea leaves suggest stormy weather ahead. What’s your move? If you’re Jeffrey Gundlach, the maestro of bonds and the brain behind DoubleLine Capital, you’re eyeing long-dated Treasurys with a glint of optimism. Here’s why.

In a financial landscape where phrases like “yield curves” and “recession” buzz around like bees, Gundlach’s recent note comes as a bit of a plot twist. The bond virtuoso is signaling a thumbs-up for long-term treasury bonds as a savvy short-term play. Why? Well, it’s all about the rebound potential. “We’re seeing a seismic shift in the 30-year US treasury yield, with a jaw-dropping leap of nearly 400bps in a blink-and-you-missed-it two years,” Gundlach points out. That’s financial speak for “Hey, these bonds have room to climb.”

But let’s pump the brakes. What’s fueling this treasury bond cheerleading? Gundlach’s crystal ball is the Leading Economic Index, a longtime harbinger of economic ebbs and flows. Add a dash of unemployment rates flirting with concerning averages, and you’ve got a recipe that Gundlach believes spells an economic cooldown.

The bond sage doesn’t stop there. He’s pinpointing a surge in long-dated bond yields to the 5% stratosphere, thanks to a veritable flood of Treasury offerings. The culprit? A hold-off on 2022 tax dues. But here’s the kicker: this tax deferral party, along with pandemic-induced financial cushions, has an expiration date.

Gundlach’s prognosis? “As the debt reprieve and tax breaks wane, consumers will need to tighten those purse strings. This shift could be a boon for bonds, dialing down the supply pressure and potentially paving the way for a bond bonanza in the coming half-year or so,” he elaborates.

And for those with a penchant for investment diversification, Gundlach’s got more up his sleeve. He’s talking up agency mortgage-backed securities and commercial mortgage bonds, spotlighting them as hot tickets. With today’s hefty interest rates, mortgages inked in the past are sitting pretty, low on refinancing risk. Plus, they’re giving corporate bonds a run for their money, value-wise, flaunting some of the juiciest spreads we’ve seen in ages.

On the commercial mortgage bonds front, while whispers of a commercial real estate tumble are making the rounds, Gundlach advises a strategic sidestep: zero in on the crème de la crème, the AAA-rated slices. They’re the financial world’s equivalent of a blue ribbon, boasting sturdier credit ratings and more tempting spreads than their corporate debt counterparts.

So, investors, as you decode the market’s mixed signals, it might just be worth pondering a page from Gundlach’s playbook. In a sea of economic uncertainty, these could be your lifelines. Or, in simpler terms: Keep calm and bond on.