NEW YORK Jeffrey Gundlach, chief executive officer and chief investment officer of DoubleLine Capital, said on Tuesday that the U.S. Federal Reserve is likely to continue its bond-buying program for years.
"I don't think that there's any confusion that the Fed is going to keep this going, not for months, but for years," Gundlach said in an investor conference call in reference to the Fed's monthly purchases of $85 billion in agency mortgages and Treasuries.
He was referring to financial markets which came under selling pressure in late February when minutes from the Federal Reserve's January meeting showed some policymakers divided over how long quantitative easing should last.
"The Federal Reserve would not hesitate to increase their bond-buying if interest rates started to rise," Gundlach added later in the call.
Gundlach said the still-fragile U.S. economy would have no growth without central bank action.
In an exclusive interview with Reuters on Monday, Gundlach said: "It's pretty clear that the Bank of Japan, Bank of England, the ECB and the Federal Reserve have expanded their balance sheets by approximately 3.5 percent of GDP per year for the last four years - and if it weren't for that, you'd have negative GDP."
Gundlach told investors on the call that he predicted the benchmark 10-year U.S. Treasury to yield 1.63 percent by the end of this year. The yield on the safe-haven bond was at 1.89 percent at the close of trading on Tuesday.
Gundlach, whose firm oversees $56 billion in assets, reiterated that he currently owns Treasuries in his flagship DoubleLine Total Return Bond Fund (DBLTX.O).
Gundlach said that he also favors non-agency mortage-backed securities- or mortgage debt that has no government guarantee of principal repayment- and that such debt is likely to earn high single-digit returns this year.
"I think the prices can move higher, I think they will move higher also because of constrained or nonexistent, even shrinking supply."
The DoubleLine Total Return Bond Fund has a 30 percent exposure to non-agency mortgage debt.
Gundlach also said that he likes the yields on bank loans, which are corporate loans that have "floating rates" that protect against rising interest rates.
"For those of you who are really worried about rising interest rates, bank loans are a good place to be because they float," Gundlach said.
Gundlach, who has warned against investing in European debt in the past, said that the euro currency will "absolutely, positively" break up, likely within this "generation."
Gundlach, who shorted the stock of Apple Inc. (AAPL.O) at $610 last year and correctly predicted that the stock price of Apple Inc. would fall to $425, said that the stock is currently at "fair value."
"I think it's probably really oversold, and it wouldn't surprise me at all for it to go up, and yet I think it's about at fair value."
The stock traded at $431.14 at the close of trading on Tuesday, but not before dropping below $425 on Monday.
(Reporting by Sam Forgione; Editing by Diane Craft)