Tags: Gundlach | tapering | rates | QE

Gundlach: Short-Term Rates Will Stay Low 'As Far As the Eye Can See'

By Dan Weil   |   Tuesday, 22 Oct 2013 08:09 AM

Don't expect the Federal Reserve to taper its quantitative easing (QE) anytime soon in the wake of the government shutdown, says Jeffrey Gundlach, CEO of DoubleLine Capital.

Macroeconomic Advisors estimates that the shutdown took 0.3 percentage point off GDP growth this quarter, The New York Times reports. That would seem to leave the Fed little room to curb its QE.

"One thing we know for sure, as much we've ever known anything, is that short-term interest rates are going to stay low for as far as the eye can see," Gundlach told CNBC.

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The three-month Treasury bill yielded 0.025 percent late Monday.

"First, we have to deal with quantitative easing," Gundlach said. The Fed is purchasing $85 billion of Treasurys and mortgage-backed securities a month.

"As long as there is a dollar of quantitative easing, short term interest rates are not going to go up. So, quantitative easing is not even going away."

Andrew Busch, editor of The Busch Update newsletter, told CNBC and Yahoo's Talking Numbers that weak economic data stemming from the government shutdown could push the 10-year Treasury yield down to 2.40 to 2.45 percent.

The yield stood at 2.61 percent late Monday, after touching a 12-week low of 2.54 percent on Friday.

Thomas di Galoma, head of rates sales at ED&F Man Capital Markets, agrees with much of Gundlach and Busch's points.

"The economic numbers don’t warrant tapering at this point," he told Bloomberg. "They may turn softer because of what’s taken place in Washington over the last month."

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Related Stories:

Faber: Fed Might Hike QE to $1 Trillion a Month

Fed's Evans: Government Shutdown Will Probably Delay Taper

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