LOS ANGELES (Reuters) - Jeffrey Gundlach, one of the world's leading bond fund managers, has reversed his once-bearish stance on government debt, saying he has bought "more long-term Treasuries in the last month" than in the last four years.
Gundlach said he started buying benchmark 10-year U.S. Treasury notes in the last month after yields popped above 2 percent, because he sees value there relative to other asset classes, including stocks, which he said are "overbought."
"I bought more long-term Treasuries in the last month than I've bought in four years. I am a fan of Treasuries now. I wasn't a fan of Treasuries in July," said Gundlach, chief investment officer and chief executive officer of DoubleLine Capital.
His Los Angeles firm manages $56 billion in assets.
Gundlach's views are a change in tune from July, when he correctly predicted that government bonds could be at a peak in price. Ten-year notes were then yielding 1.48 percent, within striking distance of the 1.44 percent level touched in the previous month, the lowest going back to the early 1800s, based on data gathered by Reuters.
"They looked cheap at a yield above 2 percent, compared to certain riskier assets, which had gone up in price over the last six months while Treasury prices fell," he said. "Also, owning 10-year Treasuries at yields above 2 percent provides an offset to credit risk we are taking elsewhere in the portfolio."
So far, Gundlach's call is proving correct as 10-year Treasury bond yields dropped below 2 percent to yield 1.87 percent on Monday.
The investor, who was dubbed by Barron's as the new "King of Bonds" two years ago, said he thinks the recent rally in stocks, which last week drove the Dow Jones industrial average within 75 points of its record close of 14,164.53, has gone too far.
"They are obviously overbought in the short term," he said.
Gundlach, known for his contrarian investment views and opinions, also shorted Apple at $610 last year and predicted that the tech giant's stock would fall to $425. On Monday, Apple's stock was trading at around $423.
He also said the U.S. economy would have no growth without central bank action.
"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's DoubleLine Total Return Fund returned 9.16 percent in 2012 — more than double than the benchmark Barclays U.S. Aggregate Bond Total Return USD index at 4.215 percent.
Treasuries have outperformed riskier credit since the 10-year yield hit 2 percent. One way of illustrating this would be to look at the performance of the iShares Barclays 10- to 20-year exchange-traded fund (TLH.P), which tracks longer-dated Treasuries, against riskier junk bonds.
Since 10-year yields popped above 2 percent in late January, it has outperformed the iShares iBoxx $HY ETF (HYG.P), a popular ETF focused on high-yield bonds. A strategy of buying the TLH and shorting the HYG would have gained 2.1 percent.
Gundlach said he remains short the Japanese yen and long the Japanese stock market because he believes Japan will pursue aggressive currency debasement in its effort to stimulate the economy.
"They are going to debase the currency and people even want them to debase the currency," Gundlach said. "Their own country wants inflation.
"Can you imagine Barack Obama or Mitt Romney wandering around the United States, saying, ‘I'm going to inflate. I want to inflate. My policy is inflation.' They want to counter deflation, but they don't talk about it. The prime minister of Japan says, ‘I want to inflate' and people said ‘Yay,' so they're going to inflate. The yen is going down."
The yen, trading at 93 to the dollar, is "of course" headed toward 100.
"I think it is going to 200" yen to the dollar, he said.
For its part, he said the Nikkei .N225, already at around 11,650, is on its way to 13,000.
He first introduced his Japan idea in December.
Aside from the Japanese yen, Gundlach is also avoiding European debt.
"I'm not interested in buying into the idea that central planners in Europe are really going to save the world," he said.
"I'm not going to be stuck holding the bag with Spanish bonds. I don't care if somebody makes money on it. It is just not for me. It is also not analyzable."
Reporting by Jennifer Ablan; Editing by David Gaffen and Jan Paschal