DoubleLine Capital CEO Gundlach Warns of Potential Recession and Bond Yields
Experts state that a potential economic contraction in the US could lead to a deep debt crisis, expressing expectations for a sharp surge in long-term Treasury bond yields.
DoubleLine Capital CEO Jeffrey Gundlach warned that the next economic contraction in the United States could trigger a debt crisis, leading to a sharp rise in long-term Treasury bond yields.
Safe Haven Perception May Change
Such a development could present a picture contrary to the long-standing general acceptance that bonds will always act as a safe haven during periods of economic distress.
Alternative Policies May Come to the Agenda
According to Gundlach, this scenario could push the US Federal Reserve and the US Department of the Treasury toward unconventional policies.
These could include purchases of long-term bonds by the Fed, similar to Operation Twist, or, as a more extreme option, debt restructuring.
Shift Toward Short-Term Assets
Gundlach stated that DoubleLine funds have increased their weight in short-term assets in order to protect against potential further rises in interest rates.
Emphasis on Budget Deficit and Interest Expense
Speaking at an event in New York, the official emphasized that in the event of a recession, the budget deficit could rise to 12% of GDP, creating an unsustainable annual interest expense of $3 trillion.