Bond King Gundlach Warns Investors of Rising Interest Rates
A warning has emerged that a further spike in U.S. long-term Treasury yields could send shockwaves through the broader market. Jeffrey Gundlach, CEO of DoubleLine Capital, known as the 'Bond King,' told investors at an event in Manhattan, New York, on the 17th (local time) to brace for rising interest rates. U.S. Treasury yields have climbed to their highest levels in nearly two decades in recent weeks, with the 10-year Treasury yield breaching the 5 percent mark—a key psychological threshold in the bond market. Gundlach laid out a scenario in which rates climb as high as 6 percent, warning that this could push the U.S. economy into recession and trigger a wave of corporate bankruptcies.
The U.S. Treasury recently announced a plan to repurchase $6 billion (about 8.33 trillion won) in long-term bonds. Yet Treasury yields actually rose on the day of the announcement. The market views the move as falling short of addressing the fiscal concerns that have become its biggest worry.
Behind the global bond selloff and the resulting surge in yields are inflation fears driven by rising oil prices—meaning investors are pricing higher rates into bond prices. Gundlach pointed out that the U.S.-Iran war, which broke out in February of this year, has led countries to draw down significant amounts of their strategic oil reserves, meaning crude stockpiles will soon need to be replenished. This additional demand, he explained, could further stoke inflation.
Gundlach singled out artificial intelligence (AI) and private equity as particularly vulnerable spots. He warned that rising borrowing costs could collide with stretched AI-related valuations and signs of distress in the private equity market. "We seem to be on a collision course or something similar to that," Gundlach said, adding that "defaults will start coming fast and furious." He noted that "the path of least resistance for long-term Treasury yields is higher."
Gundlach, known as one of the investors who predicted the subprime mortgage crisis, said he is steering clear of stocks at this point. Earlier this year, he advised investors to increase their exposure to real assets such as cash, commodities, and gold.
