The default cycle that should have occurred, given historical patterns of issuance cycles, has morphed (thanks to the Fed) into a refinancing cycle; but while DoubleLine's Jeff Gundlach suggests that fundamentals are supportive, "the valuation of junk bonds as a category is at its all-time overvalued versus long-time treasury bonds." So despite Yellen exclaiming that she sees no bubbles, one of the world's largest bond fund managers has never seen corporate bonds (investment grade and high yield) more expensive. Gundlach goes on to note he has sold some Apple (but believes it will remain range-bound), is baffled by the valuation of Chipotle, and sees 10Y Treasury yields dropping to 2.5% or lower.
...a lot of companies that under normal circumstances might have defaulted got to refinance instead.
- *GUNDLACH TELLS CNBC ISN'T INTERESTED IN PUERTO RICO BONDS
- *GUNDLACH TO CNBC: 10-YR TREASURY MAY GO TO 2.50% OR LOWER
- *GUNDLACH TO CNBC: ISSUE W/JUNK BONDS, CORP. DEBT IS VALUATION
- *GUNDLACH TO CNBC: STILL OWNS APPLE, HAS SOLD SOME SHRS RECENTLY
- *GUNDLACH TO CNBC: `BAFFLED' BY MARKET VALUATION OF CHIPOTLE
Gundlach likes EM bonds (on a valuation basis):
...the real risk in emerging market bonds seems to be the currency risk more than anything else. If you go dollar denominated obviously you don't have that currency risk. Last year corporate junk bonds in the US had a 7% positive return and emerging market debt had a negative 5% return or so... and that kind of a divergence is historically very, very rare. There is something to mean reversion.