LOS ANGELES: DoubleLine Capital has its lowest-ever allocations to speculative-grade bonds now, because valuations just don’t reflect the risks.
The money manager has been gradually cutting its high-yield bonds and other sub-investment-grade debt over the past two years, Jeffrey Gundlach, chief executive officer, said at the Bloomberg Global Credit Forum in Los Angeles last week.
There are myriad risks, including inflation and tariffs, and investors aren’t getting paid for them, he said.
Spreads, or risk premiums, on US high-yield notes are around three percentage points now, according to Bloomberg index data.
That’s well below the two-decade average of 4.9 percentage points, and close to the lowest levels since 2007. At some point, there will be a sell-off and it will make sense to go bargain hunting, Gundlach said.
“We want to be a liquidity provider when you get paid to be a liquidity provider – and you’re not now,” he said. “Spreads are very uninteresting in the credit market.”
Gundlach is one of a series of market watchers who have expressed worries about nosebleed valuations in corporate debt.
Jamie Dimon said last week that he wouldn’t be buying credit now if he were a fund manager, echoing comments he made last month.
Sixth Street Partners co-founder Josh Easterly has also voiced concern.
These concerns are largely being shrugged off in credit markets. Valuations are high because so many investors are eager to buy now, demand that has helped new issues for high-grade US corporate bonds this year garner nearly four times as many orders as there have been bonds for sale. — Bloomberg