‘Bond king’ Gundlach says inverted yield curve means weaker economy

DoubleLine CEO Jeffrey Gundlach believes that the recent inversion of the U.S. Treasury yield curve is a signal that the economy is set to weaken.

The so-called “bond king” told Reuters that the phenomenon is predicting that the “economy is poised to weaken.”

He also told Reuters the “totally flat” Treasury note curve will “stay the Fed’s hand” on future hikes to the federal funds rate.

On Monday, a portion of the so-called yield curve inverted, a phenomenon characterized by short-term rates that exceed long-term rates. As of Tuesday morning, the yield on the benchmark 2-year Treasury note hovered at 2.821 percent, above the yield on the 5-year note at 2.811 percent.

Short-term yields, impacted by changes in Fed policy, have been anchored in place in recent months as Chair Jerome Powell led his colleagues in three increases to the overnight lending rate. In contrast, inflation and economic expectations dictate the movement of long-term rates; investors estimate how much they should be compensated beyond inflation for holding government debt over several years.

The closely followed spread between the 2-year Treasury note yield and the 10-year Treasury note yield remains positive.

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