Jeffrey Gundlach: The Case for Rate Cuts is Falling Apart | CNBC

Jeffrey Gundlach: The Case for Rate Cuts is Falling Apart — CNBC (interview with Scott)

Key market views (high level)

• Gundlach is cautious on risk assets (equities, corporate credit) and constructive on commodities and gold.
• He favors certain structured fixed‑income areas (ABS, CMBS) over unsecured corporate and private credit.
• Main macro theme: inflation is higher and stickier than the Fed projects; market pricing signals more risk of further tightening than of cuts.
• He thinks the market’s prior expectation of Fed rate cuts this year is increasingly unlikely given inflation/commodity dynamics and current market signals.

Assets, sectors, and instruments mentioned

• Equities (risk assets; MAG‑7 noted as stalled)
• Volatility: VIX
• Fixed income: Treasuries (notably the 2‑year), Fed funds rate
• Corporate credit / High yield (HY) bonds
• Bank loans (including distressed triple‑C bank loans)
• Private credit / private credit funds
• Structured credit: Asset‑backed securities (ABS) and commercial mortgage‑backed securities (CMBS)
• Commodities (Bloomberg Commodity Index) and gold
• Oil (spot referenced near ~$100/barrel)
• Emerging markets

Explicit numbers, spreads, yields, timelines, and performance metrics

• Fed funds (midpoint): 3.58% (“three and 58”)
• Two‑year Treasury trading above the Fed funds rate (implies market expects higher‑for‑longer policy)
• Gundlach’s inflation model: headed to ~3.5% in H2 2026
• Fed projections (quoted by Gundlach): inflation = 2.7% (this year), 2.1% (next year), 2.0% (2028) — he calls these unrealistic
• High yield spreads: widened roughly 60–70 bps recently (example given: from ~250 bps to ~325 bps over Treasuries)
• Junk bond yields (absent defaults): roughly 7.0%–7.5%
• Triple‑C bank loan spreads: ~1,900 bps (very wide; signaling distress)
• Private credit: example of a major fund marking down ~19% in one day
• Private credit sponsor estimates: ~8% default over next 12 months; typical recovery ~50% → implied ~4% net loss from defaults (which can exceed private credit spread premium vs public credit)
• Gold: previously rose from ~2,000 to almost 5,500 (Gundlach had earlier targeted >4,000); after pullback gold is near his earlier target and he views current levels as a buy opportunity
• Bloomberg Commodity Index: recently fell below 50‑day and 100‑day moving averages; 200‑day MA expected to act as longer support
• Bond portfolios: after a strong start to the year, many are modestly negative YTD due to higher rates and spread widening

Methodologies, signals and frameworks Gundlach references

• Market signals to watch:
  • VIX level: some investors view VIX >40 as a washout/buy signal; Gundlach would like to see higher VIX for an equity washout.
  • Two‑year Treasury vs Fed funds: 2‑yr > Fed funds implies market expects higher‑for‑longer policy (fewer cuts).
  • Credit spread widening (HY spreads, bank loans, triple‑C loan spreads) as an early stress indicator.
  • Structured product stability (ABS, CMBS) as relatively safer within credit.
  • Commodity moving averages: 50/100/200‑day MAs, with the 200‑day acting as longer support.
• Private credit due‑diligence heuristics:
  • Beware infrequent marking (quarterly) — it can mask problems for longer.
  • Stress test default rates (e.g., 8%) and assumed recoveries (e.g., ~50%) to estimate potential haircuts versus spread pickup.
  • Monitor redemption dynamics: constrained liquidity plus large redemptions can force deeper markdowns.
• Risk management stance:
  • “Play defense” in fixed income: favor stable structured credit (ABS, CMBS) over unsecured corporate and private credit.
  • Add commodities and gold as inflation hedges and diversifiers.
  • Avoid reaching for yield in illiquid or poorly marked private credit.

Recommendations, positioning, and cautions

• Buy/add to gold and commodity exposure; view current pullbacks as buying opportunities.
• Be defensive on equities and credit — Gundlach is not enthusiastic about these markets now.
• Favor ABS and CMBS as relatively safer fixed‑income allocations.
• Be cautious on private credit, triple‑C loans, and some private funds — expect continued spread widening, liquidity stress, and possible large markdowns.
• Do not bank on Fed rate cuts this year; prepare for fewer/no cuts and sustained higher inflation.
• Watch oil and commodity moves — big moves higher could alter the Fed’s policy path.

Risks and possible catalysts

• Rising commodity and oil prices (~$100/barrel) that could push inflation higher and keep policy tightening‑biased.
• Private credit liquidity stress and abrupt large markdowns (example: 19% single‑day markdown).
• Redemption waves in illiquid vehicles (private credit/blind pools) forcing deeper marks.
• Widening corporate/HY spreads and dramatic weakness in subordinated bank loans (triple‑C).
• Geopolitical events (war) that affect oil, commodities, the dollar, and duration moves.

Remarks on the Fed and politics

• Gundlach criticizes Fed messaging as uncertain; he sees Fed inflation projections as too optimistic.
• Market pricing (2‑yr > Fed funds) shows the market is not pricing in the cuts many commentators expect.
• He notes political friction between President Trump and Fed Chair Jay Powell; Gundlach thinks Powell may remain influential at the Fed through 2028 and could resist cuts if inflation stays elevated.

Disclosures / disclaimers

• No explicit “not financial advice” subtitle appeared in the interview. Gundlach’s comments are presented as market views and opinions.

Bottom line: Gundlach is defensive — prefer commodities/gold and select structured credit (ABS/CMBS); avoid or underweight private credit, lower‑quality loans, and stretched credit markets. He believes rate cuts this year are unlikely — inflation and commodity dynamics plus market signals (2‑yr vs Fed funds, widening credit spreads) support that view. Monitor VIX, HY spreads, triple‑C loan spreads, and private credit marking/redemption dynamics.

Presenters / sources

• Jeffrey Gundlach — founder, CEO & CIO, DoubleLine Capital
• Interviewer: Scott (CNBC)