Why Gundlach says it’s a very unusual market — and what bonds he likes now

CEO of DoubleLine Capital Jeffrey Gundlach says his firm is buying emerging market bonds, particularly those denominated in local currencies instead of the U.S. dollar. - Getty Images

The so-called bond king says local currency emerging-markets bonds are the place to be.

“We have an environment that is highly unusual,” DoubleLine CEO Jeffrey Gundlach told UBS in a podcast interview last week that was just released. The investor who was famously dubbed the bond king said that for the first time in the nearly 45 years that he’s been a professional investor, interest rates are rising and not falling.

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Emerging markets have, as a group, a lower debt-to-GDP profile than the U.S., and also benefit from a weakening dollar. “I might have a quarter of [an allocation to bonds], or least 20%, in local-currency emerging market bonds, because you have much higher yields, you have better economics, you have better budget fundamentals,” he said.

Gundlach also pointed out that in the risk-off environment in April, as President Donald Trump announced tariffs, the dollar DXY weakened rather than increased, as it had done in 12 previous corrections.

“So I think you’re not going to see long-term Treasurys act as the safe haven against economic risk or risk-off enviroment,” he said. The one caveat would be if the government does yield curve control, as it did during World War II.

He said in some portfolios, his firm is outright short 30-year Treasurys BX:TMUBMUSD30Y, and in others it’s underweight, owning more in the 3- BX:TMUBMUSD03Y to 5-year BX:TMUBMUSD05Y duration instead.

Gundlach pointed out that in January, he said investors should have put all their stock-market investments outside the U.S., a call that’s proved prescient. The Vanguard FTSE Europe ETF VGK is up 25% this year, versus the 13% rise for the S&P 500 VGK.

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More broadly, he expects an environment of inflation in the 3% range, rather than the 2% target of the Fed, particularly once Jerome Powell is replaced as chair of the Fed.

“And I really think, to put it very simplistically, I think the question that’s going to be asked in the job interview is, ‘Are you going to set rates where I, Donald Trump, want them.’ And if that’s the case, we could be looking at a pretty significant change in the real interest-rate of the fed funds rate, from now positive real interest rates, to one that would be negative, which of course would be an inflationary policy,” he said.

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As he often does, he said the Fed will follow the 2-year BX:TMUBMUSD02Y, which at the moment implies three more cuts.

Gundlach has been bullish gold for some time but he says it’s no longer a good time to buy. “Commodities are not working except for silver and gold, which have worked so well that it seems like a poor entry point. But I still own gold, and I still own gold miners, in my personal portfolio,” he said.

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