While everyone seems to be hot on the upcoming Fed rate hike, one L.A.-based bond savant would like the Federal Reserve to hold its horses for a while.
In a phone interview with Reuters, DoubleLine Capital’s Jeffrey Gundlach said that “to raise interest rates when junk bonds are nearly at a four-year low is a bad idea,” alluding to a possible selloff in the space.
As previously reported, several hedge funds are gearing up for a possible collapse in the high-yield bond market, pointing to the record number of high-yield ETFs and “alternative” mutual funds sold to mom and pop investors this year.
While what the selloff’s catalysts would be is still unclear, a rate hike should probably be on top of that list, as Gundlach says: “it opens the lid on Pandora’s Box of a tightening cycle,” adding, “if you start raising rates after such a long period of zero-bound rates, it is a different regime.”
Aside from his concerns over the rate hike, the current bond king also spoke on the issues currently surrounding China’s growth outlook, particularly its impact on commodity prices, saying:
“(It) should be a huge concern. It is the second-biggest economy in the world…the global economy is weak…You get much more downside in commodities and it could really spiral, the problem is that people give it a zero probability.”
Photo: International Monetary Fund