Tags: Gundlach | bonds | rates | Fed

DoubleLine's Gundlach: Bonds Are Best Investment Now

By Michael Kling   |   Wednesday, 10 Jul 2013 08:01 AM

The best investment now is bonds, according to Jeff Gundlach of DoubleLine Capital.

"I think the place – the one place – that you're likely to make money in the next several weeks, maybe couple of months, is actually, believe it or not, the most hated asset on the planet: long-term U.S. government bonds," Gundlach told CNBC.

"That's what I think is going to be the most successful investment."

Editor’s Note:
Put the World’s Top Financial Minds to Work for You

Gundlach is making a contrarian call by recommending bonds. Bonds values are expected to fall as interest rates increase, largely due to the Federal Reserve's plan to wind down its asset purchasing.

In what may be a sign of things to come, bond prices plummeted last week as interest rates spiked after the Fed said it might start tapering later this year.

Bonds will perform well because inflation will remain low to nonexistent, Gundlach explained.

"There's no sign of inflation," he said. "When you look at the commodity market in particular, it really looks bad.

"Look at where copper is. Look at where gold is. Look at where gold is in foreign currencies. It's hitting new lows in terms of Japanese yen. It's hitting new lows in terms of the euro. It looks like it's about to hit new lows even in terms of the dollar, which has been a weak currency, so gold should be going up in dollar terms."

Many investors shifted allocations from long-term bonds to bonds with shorter maturities because long-term bond values drop the most when interest rates rise. Investors may continue to cut back on their long-term bonds holdings as the Fed indicates that it will follow through with winding down its monthly bond purchases.

However, although short-term bonds will fair better as rates rise, they typically provide less yield, experts point out.

Even if a bond fund boasts both short-term maturities and a strong yield, it probably entails other types of risk, warned Todd Rosenbluth, a researcher at S&P Capital IQ, according The Wall Street Journal.

"Yield is never free," Matt Tucker, head of fixed-income strategy for iShares, a unit of BlackRock Inc., told The Journal. "You need to understand what risks a fund is taking to generate yield."

For instance, in addition to the bonds' duration, investors should consider the industries and credit of borrowers, he said.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

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