Inside Gundlach's Treasury bet

He called the financial crisis in 2007; last year he called Apple a “generational short” and for his next trick, Jeffrey Gundlach is making a big call on Treasuries. "I bought more long-term Treasuries in the last month than I've bought in four years. I am a fan of Treasuries now. I wasn't a fan of Treasuries in July," Mr. Gundlach, chief executive of DoubleLine Capital LP, told Reuters earlier this week. Three percent of Mr. Gundlach's flagship DoubleLine Total Return Fund (DBLTX) is held in bonds. The $39 billion fund was the best-selling fund last year. Mr. Gundlach explained his newfound appreciation for government bonds in an investor conference call Tuesday. “Quantitative easing will not allow rates to rise. So, with the 10-year yield above 2% and 30-year yield above 3.25%, Treasuries are attractive,” he said. There's been much handwringing over what will happen when the Federal Reserve stops its quantitative easing programs, but that's not something Mr. Gundlach is concerned about, at least not for the foreseeable future. "I don't think that there's any confusion that the Fed is going to keep this going, not for months, but for years," he told investors. Mr. Gundlach also pointed out that with rates around 2% — the 10-year Treasury was at 1.9% Tuesday morning — Treasuries also provides some diversification to the credit part of his fund's portfolio. Treasuries have consistently performed well when things have gotten scary in the markets and credit risk has fallen out of favor. Investors were reminded of that fact just last week when the Italian election results sent stocks tumbling for two days and the 10-year Treasury's yield dropped 5% in a single day. Bond prices rise as yields fall. Mr. Gundlach is evidently expecting a few more shocks to the system before the end of the year. When asked what the 10-year's yield will be by the end of the year, he answered “1.63% — to pick an absurdly pinpoint number.”