Jeffrey Gundlach, manager of the top-performing DoubleLine Total Return Bond Fund, said the Federal Reserve won't reduce its monthly asset purchases, known as quantitative easing, until a new chairman takes over at the central bank at the end of January.
The Fed has indicated that a reduction of asset purchases will depend on economic data, and it's unlikely that those numbers will improve sufficiently by next month to warrant a reduction in the purchases by October, Gundlach said Thursday on a conference call with investors.
“It's hard to believe the data will have such a monumental change in the next couple of weeks,” said Gundlach, chief executive officer and chief investment officer of Los Angeles- based DoubleLine Capital LP.
The central bank unexpectedly refrained from tapering its $85 billion in monthly bond purchases at the Sept. 17-18 policy meeting, saying it needs more evidence of lasting improvement in the economy. Fed Vice Chairman Janet Yellen is the leading candidate to replace Ben S. Bernanke if he steps down in January, according to a survey by Bloomberg News.
The Fed has regained some control of the bond market by not reducing its asset purchases this month, while losing some of its credibility by first suggesting a taper and then not following through, Gundlach said.
Ten-year Treasury note yields reached a two-year high of 3.01% in trading on Sept. 6 amid speculation that reduced bond buying would drive up market rates, before falling Thursday to as low as 2.61%, the lowest level since Aug. 12. Gundlach said the 10-year yield may drop to 2.45% in coming weeks.
“There's less fear and loathing for fixed income since they didn't reduce,” he said.
The odds of a meltdown in bond yields to new lows have increased somewhat, Gundlach said, though such a scenario remains relatively unlikely.
Gundlach's DoubleLine Total Return Bond Fund returned 0.3% this year through yesterday, putting it ahead of 92% of rivals. It gained an annualized 6.9% over the past three years, ahead of 97% of peers, according to data compiled by Bloomberg.