Gundlach: Steer clear of these bonds

Investors should avoid highly rated shorter-maturity debt because the potential returns are too low, according to DoubleLine Capital LP's Jeffrey Gundlach. “There is absolutely no reason to own any investment-grade bonds inside of three years for sure,” Gundlach, chief executive officer of Los Angeles-based DoubleLine, said in an interview on Bloomberg Television. “And maybe even five years is getting to that category because it has no yield.” The U.S. Federal Reserve has helped drive down bond yields by pledging to hold its target for short-term interest rates near zero until 2014 to support the economy. Yields on investment-grade corporate bonds with maturities in one to three years averaged 1.79 percent yesterday, near the record low of 1.46 percent reached in August 2011 and down from 5.35 percent at the end of 2006, according to Bank of America Merrill Lynch index data. The central bank is unlikely to change its stance to fight inflation because it wants price gains, “so it's not like you will be rolling over into higher yields any time soon,” Gundlach said. He said that he's focusing on mortgage debt, which offers better yields, “though not what we'd like to see.”