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Learn Bonds is a bond market news and education site focused on providing quality information to the individual investor.
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  • Jeff Gundlach: 3 Tips For Investors 0 comments
    Jun 24, 2013 12:56 PM | about stocks: BND

    Bond guru Jeff Gundlach was on CNBC Wednesday and had some interesting things to say. Here's what you need to know:

    1. Investors are jumping out of the frying pan and into the fire.

    Investors have been exiting bonds and bond funds based on the premise that rates cannot go much lower. Basically that the bond market is currently balanced precariously on the Fed's zero rate interest rate policy which may be winding down. In their search for yield that have put the money that they are moving out of bonds into things like dividend paying stocks, mortgage REIT's, Master Limited Partnerships (MLP's). This is a fundamental mistake because these assets do even worse than bonds in a rising rate environment. We have seen this over the last 2 months as rates have moved higher. While bonds have been flat to modestly negative over this period the performance of dividend paying stocks, Mortgage REITS and MLP's has been horrendous.

    2. The only place you are going to make money over the next few weeks and perhaps months is in the "most hated asset class" which is long term US government bonds.

    While Gundlach does think that we have seen the low in Treasury rates last year at 1.38% he said that he does not think that the 10 year yield is going to hit 2.50% in 2013. One of the reasons that he thinks this is that there is no sign of inflation anywhere. This is especially true in the commodities market where commodities like gold and copper keep making new lows. On Wednesday when the interview was done the 10 year was right around 2.30%. Today we are above 2.53% so Gundlach has already been proven wrong on the 2.50% part of his forecast. However, as the underlying fundamentals have not changed since then Gundlach likely feels that Treasuries are even more attractive at these levels.

    3. The first week of August could be huge for the bond market.

    Investors in bond index funds like Vanguard's Total Market Bond Fund (NYSEARCA:BND) are likely to get their first statement in a long, long time that shows negative 1 year returns. Gundlach says that many bond fund investors incorrectly think that the 1 year return on their statement is the fund's forward looking yield. This could trigger a mass exodus from bond funds. While he did not say this, this would likely be a great buying opportunity for the savvy investor.

    So what should investors do with this information?

    For the more aggressive investors out there it seems that Gundlach feels this may be a good time to increase the duration of your bond holdings. As he says in the interview however he feels that this opportunity may exist for the next "few weeks to couple of months". With this in mind investors would want to stay on top of these positions and reduce duration should the anticipated move lower in rates occur. The most popular long duration government bond ETF is the TLT. For longer term and more conservative investors, there may be an opportunity in early August to pick up some of the more popular bond funds like the BND at a discount.

    You can watch the full Gundlach interview here.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Themes: bonds Stocks: BND
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