Compounding the problem, bond dealers are no longer permitted to hold large inventories of corporate bonds. The coronavirus exacerbates the problem by requiring that bond traders practice quarantining and social distancing, which means that trading desks are no longer as connected as they were before the outbreak. The squeeze in corporate debt trading makes it more difficult for American companies to find liquidity, which has essentially put a stop to the practice of corporate stock buybacks – removing a key support for stock prices.
There are few, if any, opportunities in fixed income, said Gundlach, but investors may want to look at closed end funds.
“There are no opportunities for you now except maybe in closed-end funds,” said Gundlach. “Closed-end funds were trading at premiums but are now down 30% and are trading at huge discounts.”
Advisors do need to be careful and look under the hood of closed-end funds, said Gundlach – for example, if a fund was primarily invested in energy bonds, investors might want to stay away.
And Gundlach, well-known for his pessimistic market and economic commentary, ended his presentation on a positive note. “I expect you’ll see some bad economic numbers come out, and I’m actually excited about this,” he said. “This is exhilarating to me. This is where we see real opportunity.”