NEW YORK Jeffrey Gundlach, chief executive officer of DoubleLine Capital, said on Wednesday he expected a short-term rally in U.S. Treasuries and that investors should "use the strength" in U.S. stocks to take profits and diversify in overseas markets.
"I am surprised with the relentless nature" of equities after the election of U.S. President Donald Trump, Gundlach said on CNBC. Gundlach, who oversees more than $101 billion in assets at Los Angeles-based DoubleLine, said he continued to short the shares of Chipotle Mexican Grill Inc (CMG.N), although he lost a lot of money at the beginning of his trade.
On the Federal Reserve, Gundlach said the influence of central bank officials has greatly increased.
"The market is really getting kind of old-school, where the market believes what the Fed says," said Gundlach, widely known on Wall Street as the Bond King. "What's really important today isn't the interest-rate increase, which we all know is going to happen, but it's what happens with the Fed's rhetoric.
"Do we start thinking about sequential rate increases, which is what I call 'old school' - where the Fed basically says the base case is 'not wait-and-see,' the base case is 'we are going to raise rates unless the data changes'," Gundlach said. "I think that is where we are."
The Fed raised interest rates on Wednesday for the second time in three months, a move spurred by steady economic growth, strong job gains and confidence that inflation is rising to the central bank's target.
The U.S. central bank raised the target overnight interest rate by 25 basis points to a range of 0.75 percent to 1.00 percent.
However, the Fed's policy-setting committee did not flag any plan to accelerate the pace of monetary tightening - which Gundlach had expected. The statement was "not very hawkish," Gundlach told Reuters, shortly after the Fed decision.
Gundlach made a prescient call that yields would drop on the Fed decision. The 30-year and 10-year Treasury yields hit one-week lows of 3.109 percent and 2.507 percent, respectively, during the Fed's news conference with Fed chair Janet Yellen. The yield on the benchmark 10-year Treasury closed down 10 basis points at 2.50 percent. [US/]
Gundlach said on CNBC: "It has a lot to do with sentiment and positioning why I think the market is going to rally. There is a massive short position against the Treasury market pretty much along the yield curve."
(Reporting by Jennifer Ablan; Editing by David Gregorio and Jonathan Oatis)