The Bond King’s Warning
Billionaire investor Jeffrey Gundlach, known as the “Bond King,” believes the Federal Reserve will likely resort to printing more money to prop up the U.S. Treasury market. He shared this prediction at the Bloomberg Credit Forum.
Why the Fed Might Print More Money
Gundlach argues that the Fed will need to counteract weak demand for long-term U.S. Treasury bonds. Many investors are currently favoring short-term bonds, a trend exemplified by Warren Buffett’s Berkshire Hathaway, which reportedly holds a significant portion of the short-term T-bill market. This lack of demand is driving up yields on long-term Treasuries to potentially painful levels. Gundlach sees this situation mirroring the 2020 COVID-19 crisis, where the Fed engaged in significant money printing.
The 6% Trigger
Gundlach believes that once long-term Treasury yields hit around 6%, the Fed will likely act. He anticipates the Fed will announce a new round of quantitative easing (QE), buying long-term Treasuries to inject money into the economy and lower yields. He suggests that this would trigger a rapid rally in the bond market, similar to the effect seen in the corporate bond market during the COVID-19 pandemic QE program. He advises investors to buy long-term Treasuries before any such announcement.
Disclaimer: This information is for general knowledge and shouldn’t be considered investment advice. Always do your own research before making any investment decisions.
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