DoubleLine’s Jeffrey Gundlach sees ‘mass psychosis’ among yield-hungry investors

Investors who rushed into bonds last week will face a hard time making money as the market finds a bottom and rates begin to rebound, according to Jeffrey Gundlach, chief executive officer of DoubleLine Capital.

“There’s something of a mass psychosis going on related to the so-called starvation for yield,” Mr. Gundlach, whose firm manages $102 billion, said during a webcast Tuesday. “Call me old-fashioned, but I don’t like investments where if you’re right you don’t make any money.”

Treasuries suffered their steepest two-day selloff this year, as demand sagged at this week’s government auctions after yields tumbled to unprecedented lows last week.

Benchmark 10-year note yields jumped 15 basis points through Tuesday, reaching the highest this month at 1.53%, after a gauge of demand at a $20 billion sale of the securities sagged to the weakest since 2009. It was the second of three note and bond offerings this week, after an auction of three-year notes on Monday also attracted the weakest demand in seven years, sparking a selloff across maturities.

The slump left the Bloomberg U.S. Treasury Bond Index little changed in July, after it surged 5.4% through June 30 in its best start to a year since 2010.

Mr. Gundlach said on the webcast that he expects it will take until next year for 10-year Treasuries to climb back above 2%.

The Los Angeles-based money manager discussed his $7.1 billion Core Fixed Income Fund, which returned 6.1% this year through July 11, beating 65% of its Bloomberg peers, and his $260 million Flexible Income Fund, which is up about 3.3%. He said Flexible Income’s average effective duration of less than two years makes it appropriate for investors preparing for an environment of rising interest rates.

Mr. Gundlach also said:

– Policy responses to insolvency concerns for European banks are likely to be “bond unfriendly,” creating inflation “that would take everybody by surprise.”

– “Watch out” for the stock market high being rejected. He said he’s been making money with “a cautious view of the stock market” by shorting some equities.

– Emerging-market debt, especially in local currencies, is a better bet for now than U.S. junk bonds.

– Oil prices are more likely to fall below $40 than exceed $50 because of high inventories.

– He’s “quite sure” that Donald Trump will be elected U.S. president.