(Change “Treasuries” to “Treasury” in the last paragraph)
Davide Barbucia
NEW YORK (Reuters) – Jeffrey Gundlach, chief executive of investment management firm DoubleLine Capital, said on Thursday he expects the United States to fall into recession as soon as this year as rising interest rates put pressure on American consumers and businesses.
He said signs of looming trouble in the U.S. economy, including rising credit card delinquency rates and weak retail sales, suggested the possibility of economic contraction was more imminent than the risk of a rebound in inflation.
“There are a lot of signs of a recession,” he said during a webinar hosted by David Rosenberg, founder and president of Rosenberg Research. “There’s more of a recession feeling than an inflation feeling,” he added.
The asset manager, nicknamed “The Bond King,” said he is moving away from the riskiest parts of the corporate bond market, such as triple-C rated corporate debt and private credit investments, because he expects a surge in corporate defaults.
With regard to private credit specifically, he said investors seeking higher returns in private markets than in public debt markets risk being left holding illiquid assets in the event of a sharp economic slowdown.
“There’s nothing that makes private credit better than public credit at this point. Private credit is riskier, it doesn’t have the same rewards and it’s the absolute worst,” he said.
Meanwhile, DoubleLine is leaning heavily on U.S. government debt, despite concerns about rising U.S. debt levels and a surge in government debt interest payments due to rising interest rates, Gundlach said. “We’re holding more U.S. Treasuries in our strategy than we’ve ever held in the past,” Gundlach said.
Over time, however, the debt burden could grow, potentially necessitating an unprecedented restructuring of U.S. government debt.
“I have this crazy idea that I only want to buy the lowest coupon bonds, because if I had bonds with very low coupons I wouldn’t have to worry about restructuring,” he said. “I’m worried that the federal government will be forced to restructure its bonds.”
(Reporting by Davide Barbuscia; Additional reporting by Carolina Mandl; Editing by Jonathan Oatis and Josie Kao)
