I like this trade a lot. J. Gundlach, bond King, Doubline, is suggesting to blow out of your corporate bonds, especially junk, that were purchased at the height of panic when everyone thought the Fed was crazy enough to hike rates four times this year.
Wait, aren’t they still saying that?
“The junk market was scared to death that the Fed was actually going to go forward with their suicide mission to raise rates four times this year, four times next year and four times the year after,” Gundlach said. “It’s not surprising that the same burst of enthusiasm for Treasury bonds, once the Fed seemed to abort their suicide mission, it also helped junk bonds. I don’t think that can continue any longer.”
All true.
At any rate, he thinks MBS are cheap relative to treasuries here. Naturally, this valuation call is predicated upon the notion that treasuries will remain all all-time highs. When you play the game of ‘this is cheap relative to that’, you sometimes get lost in the sauce and often times can drown in it.
Nevertheless, I am a fan of treasuries and agree with Gundlach that MBS are preferable to corporate bonds–whose balance sheets are vulnerable to the caprices of crude oil traders.
The best way to play Gundlach’s idea is via MBB.
If you enjoy the content at iBankCoin, please follow us on TwitterGovernment-backed Ginnie Mae mortgage-related securities “are cheap relative to Treasuries,” the fund manager said. “That’s been a good buy point for the past six years.”
Def something for me to mull. Thank You.
Wouldn’t touch that agency debt with the proverbial 10 ft pole. It’s way over-levered. Treasuries will not get tossed under the bus; agencies will.
No way, these will never default. Ginnie Mae is *explicitly* gov’t backed. In 2007-2009, the gov’t decide to back Freddie and Fannie even when they had no explicit backing.
The real question is not really default, it’s valuation (as compared to Treasuries). These are 15-30 yr bonds yielding 2.28% (MBB), while TLT is yielding 2.38%.
Great stuff guys! Thx