Jeffrey Gundlach Says Bond Market Hinting At Rate Cuts By Year-End: Recessionary Odds 'Pretty Darn High Right Now'

DoubleLine Capital's Jeffrey Gundlach reportedly stated the bond market is hinting there’s going to be rate cuts by the end of this year and said this remains consistent with his view that recessionary odds are “pretty darn high right now.“

What Happened: Gundlach told CNBC that people aren’t used to interest rates rising and then staying there for a protracted period of time.

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"It’s going to have different ramifications than what most people’s professional experience has taught them. And that’s certainly the case with these bank failures. I mean these people are pulling money out because there’s absolutely no reason to keep their money in. You can get higher interest rates by a lot, thanks to the Fed’s 500 basis point interest rate increases. You can get bills at 5.2% for a couple of months," Gundlach argued.

Gundlach said it appears to him that bank deposits are going to keep drifting out. "I don’t think that this is the last chapter in this regional banking problem," he noted.

The Federal Reserve hiked the policy rate by 25 bps, on expected lines. However, markets pared the initial gains made on Wednesday as Chair Jerome Powell stated the central bank still sees inflation as too high, and stated it was too soon to say the rate hike cycle is over. The SPDR S&P 500 ETF Trust (NYSE:SPY) closed 0.69% lower while the Invesco QQQ Trust Series 1 (NASDAQ:QQQ) lost 0.65%.

Market View: Gundlach also pointed out he is turning more bearish in the current times. "I think the markets for risk assets are too complacent given this cocktail of higher interest rates, quantitative tightening and credit contraction," he said.

Gundlach noted that investors should certainly expect higher default rates in lower quality fixed income securities going towards the end of this year. "I am strongly of the opinion that investors should be going up in quality in bond portfolios," he said.

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