Investors need to think about junk bonds in relation to municipal bonds, Jeffrey Gundlach, CEO of the fixed-income investment management firm DoubleLine Capital and former CIO of TCW Group, told CNBC on Wednesday.
"There's a tax benefit in municipal bonds. When you take that into account on a tax-adjusted basis, long-term munis yield 8.25 percent—about a percent and a quarter more than a basket of junk bonds," Gundlach said.
"One can say there are problems in municipal bonds, in terms of fiscal situations at the state level. But either those problems are going to blow up or they're not," he said.
"If the problems don't blow up, you're obviously going to have better results in munis and, if they do blow up, junk bonds are going to blow up too," Gundlach said.