(Changes “Treasuries” to “Treasury” in the last paragraph)
By Davide Barbuscia
NEW YORK (Reuters) – Jeffrey Gundlach, the CEO of investment management firm DoubleLine Capital, expects a recession in the U.S. as soon as this year, he said on Thursday, as higher interest rates put pressure on U.S. consumers and businesses.
Signs of trouble in the U.S. economy, such as rising credit card delinquencies and weaker retail sales data, suggest the possibility of an economic contraction is more imminent than the risk of an inflation recovery, he said.
“There are a lot of recession signals,” he said during a webinar hosted by David Rosenberg, founder and president of Rosenberg Research. “There is more of a recession feeling than an inflation feeling,” he added.
The money manager, often called “the bond king,” said he was staying away from the riskiest parts of the corporate bond market, such as triple-C rated corporate bonds and private credit investments, because he expects corporate defaults to rise. .
Turning to private credit, he says investors looking for higher returns in private markets than in government bond markets risk being stuck with illiquid assets in the event of a sharp economic slowdown.
“There is no single factor that makes private credit look better than public credit right now. It’s riskier, it doesn’t have the same reward, it’s absolutely the worst,” he said.
On the other hand, DoubleLine is heavily exposed to U.S. government debt, he said, despite concerns about rising U.S. debt and rising government interest payments due to higher interest rates. “We now have more government bonds in our strategies than ever before,” Gundlach said.
Over time, however, a growing debt burden could lead to the need to restructure the U.S. national debt, which would be unprecedented.
“I have this crazy idea that I only want to buy government bonds with the lowest coupon… because if I have government bonds with a very low coupon, I don’t have to worry about restructuring,” he said. “I worry that the federal government will be forced to restructure the national debt.”
(Reporting by Davide Barbuscia; additional reporting by Carolina Mandl; Editing by Jonathan Oatis and Josie Kao)
