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The U.S. is dealing with rising interest expenses on its debt.
Dreamstime
Yields on a risk-free government bond have soared, and bond titan Jeffrey Gundlach says they will move even higher.
The DoubleLine Capital CEO and chief investment officer said the U.S. is grappling with rising interest expenses on its debt, in comments at the Grant’s Interest Rate Observer investment conference in New York. The average interest rate on federal debt is currently at 3%, according to Gundlach, and he anticipates that it will climb to 6% in the future.
“Yield will have to go much higher in the context,” he said.
He added, “I’m much happier” now as a bond investor than in 2016 when the bond market was in the “dungeons.” Gundlach explained that to get a 5% annual yield on a bond portfolio then, investors had to buy a junk-bond index, leverage it, and hope the bonds didn’t default.
“Now you can buy a T bill and chill.”
The one-year Treasury bill now yields 5.515%, a big step up from below 4% a year ago.
The 10-year Treasury note, at 4.801% on Tuesday, offered the highest yield since August 2007, months before the 2008-09 financial crisis.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com.