Jeffrey Gundlach, chief investment officer of DoubleLine Capital, said mortgage-backed securities are trading cheap relative to corporate bonds and a better bet because of the elevated risk of defaults in high-yield debt.
"This would be a good time to be selling corporate bonds and buying mortgage-related bonds," Gundlach told investors during a webcast Tuesday.
Mortgage-bond funds have lagged behind other sectors of the debt market this year. Gundlach's $58 billion DoubleLine Total Return Bond Fund, which had more than 80% of its assets in mortgage-related securities as of Feb. 29, has returned about 2% in 2016, compared with a 3.4% gain by the Barclays U.S. Aggregate Bond Index, the main benchmark for the broader bond market.
In February, less than a week before shares of the SPDR Barclays High Yield Bond ETF, an exchange-traded fund tracking junk bonds, hit their 2016 low, Gundlach said corporate debt was a looming opportunity as prices continued to fall. The index fund closed Tuesday at $34.42, up 9.3% from its Feb. 11 nadir.
Defaults in high-yield debt, especially loans to energy-related companies, are likely to rise, putting corporate debt as a category at higher risk, Gundlach said on Tuesday's webcast. Junk has rallied with Treasury bonds because Federal Reserve Chair Janet Yellen seems less inclined to raise interest rates, he said.
'Suicide Mission'
