Gundlach Sees Fresh Selloff in Long-Dated Yields if Fed Holds Rates Steady

Influential bond investor Jeffrey Gundlach of DoubleLine Capital expects long-dated Treasury yields to rise if the Federal Reserve holds interest rates steady at its next policy meeting. He believes there's a 60% chance of a rate hike, but thinks it's unlikely due to doubts about the Fed's willingness to move despite firm inflation and resilient activity indicators.

Gundlach pointed out that the current fed funds rate is 3.63%, while the U.S. Treasury 2-year yield is at 4.998%. This unusually wide gap suggests investors are betting on higher short-term rates over the coming two years to contain inflation.

He warned that if the Fed stands pat, long-dated yields will rise in response, but if it hikes interest rates, the bond market may stabilize. Gundlach also stated that U.S. 30-year Treasuries remain structurally vulnerable after a massive repricing from a 2020 low to roughly 5.25%.

DoubleLine's CEO emphasized that the absence of any meaningful retracement in long-term Treasury yields indicates the path of least resistance is still higher in yield. He recommended avoiding long-term Treasuries everywhere and favors shorter-duration fixed income, local-currency emerging market debt, and real assets over long-maturity Treasuries.