High yield is even more expensive, he warned, and junk paper has more risk than most think.
“People love junk bonds because for some weird reason they feel [junk bonds] don’t have interest rate risk,” Gundlach said. Last year, high-yield paper held up as rates rose, but there’s no longer a large enough yield cushion to protect junk investors from higher rates.
“That can’t happen again, not at these interest rate differentials,” he said.
“The cheapest [bond] now is the long-term U.S. Treasury, believe it or not,” Gundlach added. “No wonder there has been this move down in Treasury yields of some significance.”