Bond King Gets Antsy as Junk Bonds, Which Lead Stocks, Spiral to Heck…“We are looking at real carnage….”
by Wolf Richter
WolfStreet.com
December 9, 2015
“We are looking at real carnage in the junk bond market,” Jeffrey Gundlach, the bond guru who runs DoubleLine Capital, announced in a webcast on Tuesday.
He blamed the Fed. It was “unthinkable” to raise rates, with junk bonds and leveraged loans having such a hard time, he said – as they’re now dragging down his firm’s $80 billion in assets under management.
“High-yield spreads have never been this high prior to a Fed rate hike,” he said – as the junk bond market is now in a precarious situation, after seven years of ZIRP and nearly as many years of QE, which made Grundlach a ton of money.
When he talks, he wants the Fed to listen. He wants the Fed to move his multi-billion-dollar bets in the right direction.
But it’s not a measly quarter-point rate hike that’s the problem. Bond yields move more than that in a single day without breaking a sweat.
The problem is the risk investors piled on over the past seven years, when they still believed in the Fed’s hype that risks didn’t matter, that they should be blindly taken in large quantities without compensation, and that rates would always remain at zero. Those risks that didn’t exist are now coming home to roost.
They’re affecting the riskiest parts of the credit spectrum first: lower-rated junk bonds and leveraged loans. Grundlach presumably has plenty of them in his portfolios.
The Rest…HERE
