Gundlach says 'reasonable' to start moving into Treasuries

NEW YORK (Reuters) - Jeffrey Gundlach, the influential head of DoubleLine Capital, said on Tuesday that investors looking to purchase Treasuries in the wake of the bond market’s sell-off are making a prudent move.

Jeffrey Gundlach, chief executive and chief investment officer of DoubleLine Capital, speaks at the Sohn Investment Conference in New York, May 5, 2014. REUTERS/Eduardo Munoz

“I think it is a reasonable strategy to start legging into the Treasury market,” Gundlach said in a telephone interview.

U.S. Treasury yields rose on Tuesday, with the benchmark 10-year yield hitting its highest levels in almost five weeks.

For its part, the 30-year yield reached its highest since early February at 2.764 percent before retreating to 2.755 percent.

“We’ve been buying a little bit today ... we bought a small amount of guaranteed mortgages,” particularly Freddie Mac MBS, Gundlach said.

He added that investors who want to purchase equities at this juncture should consider non-U.S. stocks.

“They are down more than U.S. stocks. If U.S. equities go higher, it would seem very implausible that other markets would not participate in the rally even more,” Gundlach said.

Gundlach, who runs $95 billion at DoubleLine, said he does not expect much from the latest Federal Reserve meeting but does expect somewhat “hawkish” language about the potential for hikes at meetings later this year.

Gundlach suggested that a “helicopter money” drop could be the government’s next big monetary and fiscal move to stimulate the U.S. economy.

“Helicopter money is going to happen,” he said.

He was referring to an idea made popular by U.S. economist Milton Friedman in 1969, who said dropping money out of helicopters for citizens simply to pick up was a sure way to restart the economy and effectively fight deflation.

Ray Dalio, founder of the world’s largest hedge fund Bridgewater Associates, echoed the same idea in February.

Last year, Gundlach correctly predicted that oil prices would plunge, junk bonds would live up to their name and China’s slowing economy would pressure emerging markets. In 2014, Gundlach correctly forecast U.S. Treasury yields would fall, not rise as many others had expected.

Last month, Gundlach told Reuters that he foresees a “global growth scare” between now and the end of the summer, triggered by a presidential nomination of Donald Trump.

Trump’s protectionist policies could mean negative global growth, Gundlach warned. “As he gets the nomination, the markets and investors are going to worry about it more. You will see a downgrading of global growth based on geopolitical risks. You must factor this into your risk-management.”

Reporting By Jennifer Ablan; Editing by Tom Brown