Bond titan Jeffrey Gundlach has warned that yields on risk-free government bonds have soared and he believes they will continue to climb. Speaking at the Grant’s investment conference in New York, Gundlach, who is the Chief Executive and Chief Investment Officer of DoubleLine Capital, highlighted the US’s struggle with rising interest expenses on its debt. Currently, the average interest rate on federal debt stands at 3%, but Gundlach predicts it will rise to 6% in the near future.
According to Gundlach, this means that bond investors can expect yields to go much higher. In comparison to 2016 when the bond market was in a challenging state, Gundlach expressed his satisfaction with the current situation. To achieve a 5% annual yield on a bond portfolio back then, investors had to purchase a junk-bond index, leverage it, and hope for the best with regards to bond defaults. However, Gundlach now highlights the possibility to “buy a T bill and chill.”
The 10-year government bond currently offers the highest yield since August 2007, which was just before the financial crisis. This serves as further evidence of the increasing yields.