"The default rate is non-existent," he says, agreeing that fundamentals in high-yield look good. "Instead of a default cycle, we've had a refinance cycle." The issue, however, is valuation. At the end of 2013, the 30-year Treasury yielded about 4%, while BB corporates "unbelievably" yielded just 4.5% - a "remarkably low incremental yield."
His feelings about overvaluation extend to the investment grade corporate market (LQD) as well.
Most curious to Gundlach is how universally the long bond is hated at 4%, while junk yielding 4.5% gets so much love.
Besides Treasurys, Gundlach sees value in emerging market bonds. The risk is in the currency, but this can be eliminated by buying dollar-denominated paper.