Billionaire Jeffrey Gundlach believes the Federal Reserve will most likely be forced to print money to support the U.S. Treasury market.
In a new interview at the Bloomberg Credit Forum, the DoubleLine Capital founder says the Fed will likely need to counter a lack of demand for the long end of US Treasuries in the form of quantitative easing (QE).
QE is when a central bank buys assets, typically government bonds, to inject money into the economy, aiming to boost money supply and reduce long-term interest rates.
Many investors have flocked to short term bonds this cycle, with Warren Buffett’s Berkshire Hathaway reportedly owning at least 5% of the short-term T-bill market.
With a lack of demand hurting long-term Treasuries and boosting yields up to painful levels, Gundlach says the Fed will most likely respond with a similar reaction to the Covid-induced money printing campaign of 2020.
He says that once yields get up to around 6%, a money printing agenda will come to the forefront.
“There will come a moment where you have to pivot because there’s going to be a response. And I’ve got many ideas of what that response might be, but one of the leading candidates would be quantitative easing. So you get to a point where the rate is so uncomfortably high – what is that number? I’m going to guess 6% – where they say ‘this is going to be something where we’re going to be running a $5 trillion budget deficit with all this bond issuance when we go into a recession.
And so they’ll pivot – I believe this is a sensible idea, there’s other ideas too – but the leading candidate is they will announce quantitative easing on buying long term treasuries, and when they do, you have to, very quickly – and hopefully you do it the day before they announce it [because] we don’t have access to the day before stuff, that’s for the primary broker dealers.
But you would need to buy long-term treasuries as much as you possibly could.
Because when that gets announced, it’ll be just like when they announced buying corporate bonds in Covid, where all of a sudden the corporate bond market went from being down 20 points to right back to where it started in just a matter of a few days you coud get a 20 point rally on the long bond if they announce they’re buying the long bond.”
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