'Bond King' Jeff Gundlach says the inversion of the yield curve matters, no matter what Wall Street says
- Jeff Gundlach has said the bond yield curve is still an important economic indicator, after it inverted Tuesday.
- An inversion of the yield curve has traditionally preceded recessions, making it a closely watched gauge.
Plenty of analysts have said the inversion of the yield curve, traditionally seen as a sign that a recession is coming, no longer matters.
Bond King' Jeffrey Gundlach thinks they're wrong.
Soon after the most closely watched part of the yield curve flipped for the first time since 2019 on Tuesday, Gundlach said people should be paying attention.
"Right on cue, the "It Doesn't Matter This Time" white papers are coming out," the DoubleLine Capital CEO tweeted. "Don't believe them."
The yield on the 2-year US Treasury note briefly rose above the yield on the 10-year note Tuesday. A recession has typically come two years after the 2-10 spread has inverted.
The Fed's moves to hike interest rates and cut back support for the bond market have caused bond prices to fall sharply. That's triggered a sharp rise in yields, which move inversely to prices.
However, longer-dated yields have not risen as dramatically as shorter-dated ones, which are more sensitive to interest-rate expectations. It suggests that investors think inflation — another key factor influencing bond yields — and growth will be lower in the future, as interest rate rises dampen the economy.
Yet many analysts and strategists have poured cold water on using the yield curve as a growth indicator. They argue the Fed's purchases of trillions of dollars of bonds during the pandemic have skewed the market.
But Gundlach told CNBC earlier this month an inversion of the bond yield curve "would make a very strong case for a recession." He has said it could come in 2023.
He has repeatedly warned that economic growth is likely to slow as the Fed hikes rates aggressively to tame inflation.
Gundlach founded and is the CEO of the investment company DoubleLine Capital. He has been picked up the nickname the 'Bond King' after a successful career investing in fixed income.
The 2-year yield stood at around 2.351% Wednesday morning, up from roughly 0.77% at the start of the year. The 10-year traded at a yield of around 2.405%, having started the year at 1.63%.