DoubleLine Capital founder Jeffrey Gundlach has played down concerns over a ‘meltdown’ in high yield but said he preferred emerging market debt to junk bonds at the moment.
Speaking on a webcast Gundlach said: ‘The volatility within emerging markets is actually a lot less than in high yield at the moment.’
In March Citywire + rated Gundlach had warned that an acceleration in 10-year yields could force high yield corporate debt into a ‘black hole of illiquidity’, but dampened down these fears in his latest webcast.
‘I don’t see a big risks of a junk bond meltdown,’ he said. ‘I wouldn’t be surprised if there is a technical sell-off in the space because currently a lot of people are buying them in an effort to chase returns.’
Within his US domestic Core Fixed Income fund, Gundlach has actually upped his allocation to high yield from 2.1% to 3%, and maintains an 8% weighting to emerging markets.
He has also increased the fund’s allocation to infrastructure bonds, upping the weighting from 3.5% to 5% and global bonds which he upped from 3.3% to 5%.
‘They [infrastructure bonds] are safe and have shorter duration—what’s not to like?’ Gundlach said.