DoubleLine’s Gundlach sees risk for U.S. credit when dollar weakens

NEW YORK (Reuters) – The U.S. dollar’s next big move will be lower, which could lead to a significant fall in U.S. bond prices and a slew of downgrades, Jeffrey Gundlach, chief executive of DoubleLine Capital said on Tuesday.

Gundlach, who oversees around $147 billion of assets under management, said in an investor webcast that he only sees a 35% chance of a U.S. recession in 2020, but believes that when a downturn does hit, the weaker dollar will drive foreign investors out of U.S. corporate debt.

Low yields globally have pushed investors into riskier assets and led to the ballooning of BBB-rated credit, the lowest possible investment-grade rating. The decline in quality of U.S. credit poses the biggest risk to bond investors today, said Gundlach.

Gundlach said he expects the Treasury yield curve to steepen in the coming year, with the two-year yield anchored by a pause in the Federal Reserve’s interest-rate cuts. He does not expect further rate cuts in the first half of 2020.

A 2020 electoral victory for U.S. President Donald Trump is DoubleLine’s base case scenario, said Gundlach, in part because of the weakness of the Democratic party’s candidates for office.