| NEW YORK, Sept 18
NEW YORK, Sept 18 Jeffrey Gundlach, chief
executive of DoubleLine Capital, said on Wednesday that the
Federal Reserve is effectively increasing its stimulus by not
reducing its bond purchases.
In an investor webcast, Gundlach said the U.S. central
bank's decision not to reduce its bond buying indicates a tacit
increase in purchases because the U.S. Treasury is "issuing less
"To a certain extent, they are increasing their stimulus by
not reducing bond purchases, which I think is one of the reasons
why bond market sentiment, and the dollar sentiment, and gold
sentiment changed so much today," Gundlach said.
The Fed said on Wednesday that it would continue buying $85
billion in bonds per month and wait for greater evidence that
economic progress can be sustained. The central bank also cut
its forecast for 2013 economic growth.
The announcement surprised investors and sent the Dow Jones
Industrial average and S&P 500 to record highs.
Gold prices soared more than 4 percent in intraday trading and
the dollar fell to a seven-month low against the euro.
The yield on safe-haven 10-year U.S. Treasury notes,
meanwhile, plunged to 2.69 percent from 2.86 percent before the
statement. Bond yields move inversely to their prices.
"I think we saw very powerfully today based upon the Fed's
180 on their idea of reducing stimulus, we've seen what seems to
be a convincing change in psychology," Gundlach said.
On the webcast, which addressed the reopening to investors
of the RiverNorth/ DoubleLine Strategic Income Fund,
Gundlach said that the gains in the bond market Wednesday could
also mark the "beginning of a cyclical sentiment change" toward
closed-end bond funds.
The RiverNorth/ DoubleLine Strategic Income Fund has about
33 percent of its portfolio invested in closed-end bond funds.
The fund, launched in Dec. 2010, reopened to new investors on
Aug. 26 after closing to new investors in Mar. 2012.
Closed-end bond funds have sold off sharply on expectations
of a pullback in Fed stimulus, and began trading at sharp
discounts in the past four months after trading at premiums last
Closed-end bond funds were trading at an average premium of
1.8 percent in Aug. 2012, but traded at an average discount of 6
percent in Aug. 2013, according to Lipper data.
RiverNorth chief investment officer Patrick Galley and
portfolio manager Stephen O'Neill manage the fund's closed-end
fund holdings, while Gundlach sub-advises the fund using
DoubleLine's opportunistic income and core fixed-income
"We've literally gone from greed to fear in a matter of a
couple of months, and that all is due to interest rates rising,"
Galley of RiverNorth said in an interview on Sept. 10, in
reference to price changes on closed-end bond funds from
expensive to cheap over that period.
The fund, which has roughly $1.1 billion in assets, is down
2.29 percent so far this year, ahead of just 23 percent of
peers, according to investment research firm Morningstar.
Galley said on the webcast Wednesday that he liked municipal
bond closed-end funds, which he said offer tax-equivalent yields
of 11.5 percent.
The Los Angeles-based DoubleLine had roughly $57 billion in
assets as of June 30. Gundlach's flagship DoubleLine Total
Return Bond Fund is down 0.88 percent so far this
year, besting 94 percent of peers, according to Morningstar.