Gundlach warned advisors at the conference that rates have already been rising for some time—a typical slow, sneaky start of a rising interest rate environment.
Two-year Treasuries “have been rising for four long years,” he said. “In fact, today, the two-year Treasury went to a new intraday high” for that time period.
The five-year and 10-year bottomed in 2012 with no sign of trending lower.
Nominal GDP growth is the best indicator of where interest rates are headed, Gundlach said.
That measure is around 2.9 percent, versus 2.2 percent on the 10-year bond. The 2.9 percent area “would be a sensible way of thinking about maybe where the 10-year Treasury on a gradually rising basis” will end up.
“I’m not predicting that,” Gundlach quickly added. “But it’s something to think about.”
Junk bonds are trading at levels below 2012, he added, and price weakness hasn’t all been from the energy sector.
“Junk bonds are signaling with clarion bells, do not raise interest rates,” he said. High-yield “should be sold on strength.”
U.S. equities look “to be very vulnerable to another push down,” Gundlach added. Stocks have rebounded right back to recent highs, and the trend in earnings growth looks like it has reversed.
“It’s no wonder the S&P 500 is not going anywhere this year, because the earnings are not there,” he said.