Bond guru Jeff Gundlach was on CNBC Wednesday and gave three interesting tips for bond investors. Here they are:
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?ss, 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.
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