Gundlach expects short-term rally in U.S. Treasuries on Fed: CNBC

NEW YORK Jeffrey Gundlach, chief executive officer of DoubleLine Capital, said on Wednesday he expected a short-term rally in U.S. Treasuries and that investors should “use the strength” in U.S. stocks to take profits and diversify in overseas markets.

“I am surprised with the relentless nature” of equities after the election of U.S. President Donald Trump, Gundlach said on CNBC. Gundlach, who oversees more than $101 billion in assets at Los Angeles-based DoubleLine, said he continued to short the shares of Chipotle Mexican Grill Inc (CMG.N), although he lost a lot of money at the beginning of his trade.

On the Fed, Gundlach said the influence of central bank officials has greatly increased.

“The market is really getting kind of old-school, where the market believes what the Fed says,” said Gundlach, widely known on Wall Street as the Bond King. “So what’s really important today isn’t the interest-rate increase, which we all know is going to happen, but it’s what happens with the Fed’s rhetoric.”

The U.S. Federal Reserve raised interest rates on Wednesday for the second time in three months, a move spurred by steady economic growth, strong job gains and confidence that inflation is rising to the central bank’s target.

The decision to lift the target overnight interest rate by 25 basis points to a range of 0.75 percent to 1.00 percent marked one of the Fed’s most convincing steps yet in the effort to return monetary policy to a more normal footing.

However, the Fed’s policy-setting committee did not flag any plan to accelerate the pace of monetary tightening – which Gundlach had expected. The statement was “not very hawkish,” Gundlach said to Reuters, shortly after the Fed decision.

Even so, the 30-year and 10-year Treasury yields hit one-week lows of 3.109 percent and 2.507 percent during the Fed’s press conference with Fed chair Janet Yellen. The yield on the benchmark 10-year Treasury closed on the day down 10 basis points to 2.50 percent. “The shorts (shortsellers) are getting squeezed,” Gundlach added.

(Reporting by Jennifer Ablan; Editing by Lisa Von Ahn, Matthew Lewis and David Gregorio)