DoubleLine Capital CEO Jeffrey Gundlach said investors should take yield-curve inversion seriously as the indicator has proved its accuracy over the decades. The so-called bond king urged investors in a Tuesday evening tweet to not believe those who downplay the significance of the bond-market phenomenon. The yield curve inverts when shorter-term Treasury rates rise above longer-term yields. Many economists view the 2-year 10-year part of the yield curve as more predictive of a potential recession. "Right on cue, the 'It Doesn't Matter This Time' white papers are coming out," Gundlach said in the tweet. "Don't believe them." The spread between the 2-year and 10-year Treasury yields narrowed perilously close to inversion on Tuesday. Some bond pricing sources said the curve did invert, but CNBC data showed that traded just about flat but did not technically invert. Gundlach has been watching the yield curve for signs of a recession. During an investor webcast in early March , he reminded investors that the inversion of 2-year and 10-year yields has telegraphed economic downturns each of the past four times. "An inverted yield curve ... would make a very strong case for recession," Gundlach said then. "The increase in the 2-year Treasury yield has been virtually as steep as the decline during the lockdown." While the yield-curve inversion has been a reliable recession predictor, it typically takes nearly two years for an economic downturn to occur, according to Tony Dwyer, analyst at Canaccord Genuity. Gundlach has criticized the Federal Reserve's role in fighting inflation, saying that the recent readings made the Fed's 2% target look "laughable." The investor expects the consumer price index to peak at 10% potentially and end this year at 7.5%. The CPI for February, which measures the costs of dozens of everyday consumer goods, rose 7.9% compared with a year ago, the highest reading since 1982.
Jeffrey Gundlach speaking at the 2019 SOHN Conference in New York on May 6th, 2019.
Adam Jeffery | CNBC
DoubleLine Capital CEO Jeffrey Gundlach said investors should take yield-curve inversion seriously as the indicator has proved its accuracy over the decades.