New Debt King: Entering "Capital Preservation" mode, risk positions have been cut to "historical lows," with possibilities including "Federal Reserve rate hikes, US recession, and soft default on US bonds."

DoubleLine Capital’s (DoubleLine Capital) founder and CEO, “Bond King” Jeffrey Gundlach, issued a stern warning in his latest in-depth interview: the United States’ 40-year interest-rate decline cycle has ended, massive debt is pushing the economy toward an unsustainable cliff, and the frenzied private credit market is brewing a liquidity disaster just like the 2006 subprime mortgage crisis.

On March 27, in a deep-dive conversation interview hosted by the well-known financial media personality Julia, DoubleLine Capital founder and CEO Jeffrey Gundlach shared highly impactful views on global macroeconomics, the Federal Reserve’s monetary-policy path, the risks in private credit, and the directions for future asset allocation.

As one of the most influential fixed-income investors on Wall Street, Gundlach said clearly during the hours-long discussion that risks in the current financial environment are visibly building up. He not only upended the market consensus expectation that the Federal Reserve is “about to cut rates,” but also laid out an extreme scenario in which U.S. Treasuries could face “restructuring” or “soft default.”

“Because of the debt burden we’re carrying, and the way we’re currently financing the government through $2 trillion in deficits—that is completely unsustainable. If something is unsustainable, then it has to stop.” Gundlach set an intensely cautious tone right from the start.

The Federal Reserve has no secrets—its next move won’t be rate cuts, it will be ‘rate hikes’

In response to the market’s frenzy of expectations for the Fed to cut rates this year, Gundlach poured cold water on it. He said bluntly that the Federal Reserve has never been a leader on interest rates—it’s a follower.

“I think we should abolish the Federal Reserve and just use the 2-year Treasury yield as the short-term interest rate.” Gundlach said sharply that if you compare the past 30 years of the federal funds rate with the 2-year Treasury yield, the pattern is obvious: when the 2-year Treasury yield rises and is above the federal funds rate, the Fed must hike; and vice versa.

He explained the recent market battle in detail:

“Right before the Federal Reserve announced that it would hold rates steady, everyone was saying, ‘The Fed will cut rates twice this year.’ I said, no, they won’t. The 2-year Treasury yield is above the federal funds rate. Given where the federal funds rate is right now—and the 2-year Treasury yield is more than 25 basis points above the upper bound of the federal funds rate—you cannot see the federal funds rate fall.”

Gundlach predicted that if crude oil prices stay elevated (for example, WTI crude around $95 per barrel and holding steady throughout the summer), “the Federal Reserve will absolutely hike rates. You’ll keep hearing that—it’s already started. Maybe the Fed’s next move is rate hikes.”

Private credit: a full-blown “disaster” replaying the 2006 subprime crisis

When discussing today’s hottest asset class on Wall Street—private credit—Gundlach used the harshest language in the room, directly comparing it to the subprime market that led to the 2008 global financial crisis.

“Last year, last year I told people, I feel like I’m back in 2006, with all the bubbles.” Gundlach said that the current size of the private credit market—between $2 trillion and $3 trillion—looks “strikingly similar” to the subprime market in 2006 right before it entered the global financial crisis.

He completely tore off the disguise of “low volatility, high yield” in private credit, pointing directly to the fact that its valuations are entirely opaque and false prosperity. He shared a shocking industry insider detail:

“We had a very large insurance company customer. They had eight managers holding exactly the same positions. Same holding: one priced at 95, another priced at 8.”

Gundlach noted that the essence of private credit is packaging assets with extremely poor liquidity for investors who need periodic redemptions—and that fundamental mismatch is destined to blow up. He issued a warning:

“When you ask for a 14% redemption, they give you 5%. The next thing you do is you ask for a 40% redemption. In June 2026, you’re going to see some pretty crazy redemption requests. Private credit has to go through a major reshuffling.”

Capital preservation first: sell U.S. assets, overweight emerging markets and gold

Based on concerns about long-term rates rising and a credit crisis, DoubleLine Capital’s current risk exposure has been reduced to its lowest point in the 17 years since the firm was founded. Gundlach said unequivocally that “the times have changed.” “We’ve left the world of aspiration, we’ve left the world of hype.” Capital preservation is now the top priority.

Facing a price-to-book ratio for the S&P 500 that is more than double that of the rest of the world, Gundlach offered a highly disruptive “out-of-the-box” asset allocation suggestion: get rid of U.S. stocks altogether.

• 40% in non-U.S. equities: “I’ve been telling U.S. investors that the stocks they should own should be 100% non-U.S. stocks—especially emerging market stocks priced in local currency. For example, Brazil, Chile, and Southeast Asia.”

• 25% in short-term fixed income: Fully allocated to bonds with maturities within 10 years and higher credit quality.

• 15% in commodities: Of that, 10% linked to the Bloomberg Commodity Index, and 5% directly allocated to gold.

• 20% in cash: Wait to act when asset prices become cheaper in 2026.

On gold, Gundlach is extremely bullish:

“Gold is real money. Central banks will become a huge ongoing source of demand for gold… Gold is no longer something for survivalists and quirky, mad gamblers. It’s a real asset class.”

The endgame: $40 trillion in debt overhead—U.S. Treasuries may face ‘direct rate cuts’ via restructuring

For his deepest concerns about the big picture, Gundlach boils it down to the growing debt black hole in the United States. Current U.S. national debt is already $39 trillion, and Gundlach believes that when it reaches $40 trillion, “this could become a psychological threshold.”

He broke the market’s long-standing inertia—the idea that an economic downturn leads to falling rates. Gundlach warned that in the next recession, because deficits will expand sharply, long-term Treasury yields won’t fall; they’ll rise instead. The interest the U.S. Treasury pays each year is already $1.4 trillion, “heading toward $2 trillion in interest expense.”

At the same time, when asked about the likelihood of a recession, he said:

“I certainly think it’s highly likely that those in power will announce that the possibility of a recession beginning at some point in 2026 is significant. I’d give at least a 50% probability.”

If long-term rates rise to around 6%, interest expense will fully detonate. Gundlach laid out two endgame routes to resolve the crisis: devaluation via inflation or soft default (debt restructuring).

Even more striking, he believes the chance of the U.S. government being forced to forcibly change the rules for Treasuries—directly lowering coupon payments—is far greater than what the market expects.

“I think investors need to consider the idea that the creditworthiness of U.S. Treasuries could become an issue. People don’t like hearing that. They think it’s too aggressive.”

To avoid this “rate cut” restructuring risk, Gundlach’s team has taken extreme defensive measures: shorting all long-term Treasuries, and converting any Treasuries they are required to hold into bonds with the lowest coupon rates within the same maturity bucket (for example, 1.5%)—to prevent higher-coupon Treasuries (like 6%) from having their coupon rates cut by the government, which would cause the principal to collapse.

At the end of the interview, Gundlach predicted that the “restructuring” of the U.S. system—or a major “reset” (i.e., the fourth turning)—will occur around 2030. Before that, his strategy is just four words: “wait for a great opportunity.”

The full interview is as follows:

Jeffrey Gundlach
Because of the debt burden we’re carrying, and because of the way we’re financing the government through $2 trillion deficits right now—this is completely unsustainable, so something has to change. If something is unsustainable, then it has to stop. This situation has to stop. And politicians, of course, have shown absolutely no willingness to control spending. So ultimately it will have to be enforced by the market. So, the risk in the current environment is visibly building, and I’m very interested in taking a low-risk approach in the coming months and across the next few quarters.

Julia
DoubleLine Capital founder and CEO Jeffrey Gundlach. It’s a real honor to have you on our show today. Thank you so much for taking the time to speak with me.

Jeffrey Gundlach
Thanks for inviting me, Julia. We haven’t talked in a long time.

Julia
It has been a long time. It’s been five years since we last talked. You are one of my favorite people to talk to in the investment world. Once again, it’s a real honor to have you on the show, Jeffrey. A lot has happened already this year. I can’t believe we’re about to end the first quarter. I’ve been telling my guests that there’s been too much happening, too much change, too many shifts. And yes, there really has. Since it’s been a while since you were last on the show, let’s start with the macro picture. Talk about the framework you’re using to view the world today, your assessment of the economy and the markets, and what you’re focused on. Jeffrey, one of the features of this show is that when you explain the macro picture, you can go as long as you want—you can take as much time as you need.

Jeffrey Gundlach
All right. Well, the economy seems to be slowing. Interestingly, bond yields are rising. Treasury yields are rising. As the economy slows, one core idea I’ve been developing—actually over the past five years or so—is that we are no longer in an environment where interest rates are going to decline for the long run, especially for long-term rates. I came to that conclusion about four or five years ago. At the time, I was met with a lot of pushback. They thought rates would stay low for the long term due to intergenerational reasons. But I think interest rates have a long cycle—typically lasting about 40 years. Rates bottomed around 1945, then started rising in the 1950s and kept rising all the way to—I think you could say—1984. After that, rates began falling and continued to fall until 2000. I’ve always believed that because of the interest expense burden on Treasuries, the long-term downtrend in long-term rates has definitely ended. Interest expense has exploded due to $2 trillion in annual budget deficits that keep growing, and due to higher interest rates. You know, the Federal Reserve raised short-term rates from zero to 5.375%, which caused a huge increase in interest expense. So the U.S. pays about $20k in interest each year. And now it’s about $1.4 trillion, and it seems to have no end in sight.

Jeffrey Gundlach
Deficit spending. So we keep adding about $2 trillion in debt every year. And the average interest rate on Treasuries coming due is currently about 3.8%. So given that the 2-year Treasury yield is about 4% now, and the 30-year Treasury yield is close to 5%, if we maintain the status quo, those bonds coming due will be replaced by new bonds with higher rates.

Jeffrey Gundlach
I’m very interested to see what happened about a year ago with “taper tantrum” and “tariff tantrum.” What’s interesting is that during “tariff tantrum,” the S&P 500 fell by 18%. If you look back at the past several decades—13 pullbacks or bear markets for the S&P 500—each of the first 12 had the dollar rising, up about 8% to 10%. When the stock market fell 18% last year, the dollar actually fell, and that’s very thought-provoking. That confirms my view that when markets are weak or the economy is weak, yields don’t go down.

Jeffrey Gundlach
Now what’s really interesting is that it’s hard for people to distinguish what the real reason behind rising yields actually is. Everyone will say oil prices, and there is some truth to that. But it’s a pattern that’s breaking. In the past, when Treasury yields rose, credit spreads for credit products typically tightened. But in March of this year—that was one of the worst months in a very long time. I mean, this month, the 2-year Treasury yield rose by 60 basis points, yet credit spreads widened rather than tightened. So we’re starting to see financial conditions truly tighten. That’s why I’ve continued to believe we’re heading into an environment that is very unfavorable for financial assets. I know I sometimes hear the replay of your Saturday morning show—I think it’s the one with Chris Whelan. I think I started listening. Maybe it’s confirmation bias, because I agree with a lot of what he said. But last year, last year I told people, I feel like I’m in 2006, with all the bubbles, all these—AI digital technologies and the narrowness of the market. Last year, making money was too easy. I mean, even bonds—investment-grade bonds rose 8%, and the S&P 500 rose about 17% or 18%. European stocks performed better, and emerging market stocks performed best.

Jeffrey Gundlach
But this year has been a year of caution and reflection. I noticed that last year, although gold was up about 70%, Bitcoin was actually down. The conclusion I draw from that is that we’ve left the world of aspiration. We’ve left the world of hype and the idea that everyone thinks “it’s only once in life” or something like that. We’ve entered a world of reality because of Bitcoin. It’s like something from three or four years ago. One of the biggest insults to it—I think—is that Millennials would tell baby boomers, only baby boomers still care about Bitcoin because it isn’t cool anymore. So we’ve entered a world made of something concrete and real, leaving the world of hype. I think this will become a theme. Today I’m watching financial news; we’re approaching the end of March. They say this is the worst quarter for the stock market since 2022. That’s been a long time coming. I mean, the stock market is down that much. I mean, I think some indices are down 2% or 3%, some may be down 3% or 4%. But that means that over the past four years, we haven’t seen the stock market have a single-quarter drop of 5%—and it looks overdue. Entering 2026, the stock market valuations remind me of the end of 2021—what led to a terrible year afterward.

Jeffrey Gundlach
So in 2022—so I think we’re in a world where capital preservation is paramount. At DoubleLine, we’ve been cutting risk continuously for more than two years—especially in terms of credit risk—constantly upgrading quality. In fact, in the funds where we can invest in BBB-rated corporate bonds and similar instruments, our holdings are at the lowest level in DoubleLine’s history (nearly 17 years old). Our outlook for financial assets isn’t very optimistic because I think even if we fall into a recession, long-term Treasury yields will rise rather than fall, which breaks the pattern of the last 40 years of my career. This is what I think is going to happen. So we’re going to face an environment where people are increasingly worried about interest expense—basically, the interest cost they are carrying for massive debt.

Jeffrey Gundlach
I hear a lot of people say if gasoline prices rise above $4 per gallon nationwide, it will have a psychological impact on the economy. I think that might be true. This morning here in California, our gas prices are about the highest. Hawaii might be higher, but our gas is very high, and it costs me $6.70 to fill up the tank at the gas station right now. That’s really…

Julia
Regular gas?

Jeffrey Gundlach
Yes, regular gas. So prices are already high. But I also think these psychological thresholds matter. Most people don’t realize that national debt is already over $39 trillion. I have a feeling that when it reaches $40 trillion, it could become a psychological threshold—then people start thinking, you know, by 2030 or 2031 it might reach $50 trillion.

Jeffrey Gundlach
That’s a huge problem. I think investors believe that many things they “know” are shaped by falling interest rates and the experience that you can always get through the cycle via refinancing. But that era is over. So what happens when 30-year Treasury yields actually start rising in a weak economy? Think about it. If the economy is weak and bond yields are rising, think about what that implies. It means interest expense is growing faster. Of course, when the economy is weak, budget deficits expand and become a very large share of GDP. In the past, during recessions, budget deficits typically expanded by about 4% of GDP. Of course, the last two recessions were extremely severe. You know, there was the global financial crisis, and then there were the pandemic lockdowns—during which budget deficits expanded to 8% and 12% of GDP. So if that kind of thing really happens, then I think one message I’ve been telling visionary investors is that we may see some pretty aggressive actions taken to address the interest expense problem. One idea was floated in a white paper at the end of 2024. Then Scott Bessent—who at the time wasn’t Treasury Secretary yet—he commented that maybe we should restructure the U.S. Treasuries held by foreign investors. He meant extending maturities and lowering coupons. He said that, and it’s interesting because that’s also an idea I’ve been thinking about. I think the likelihood is higher than most people are willing to believe. Maybe one approach to dealing with the issue isn’t only to do it for foreign investors, but possibly for all Treasuries. So you go and say, I know we’ll directly reduce the coupons on Treasuries so we can reduce interest expense. Think about it—average Treasury coupons are about 3.8%. If you cut it to, say, 1%, you can cut interest expense by nearly 75%. That would bring us back to the spending level from five years ago, giving more room to push the problem out. Because you can’t afford it if we go toward $2 trillion in interest expense—that’s exactly where we’re heading, and that would truly be unsustainable.

Jeffrey Gundlach
So I think investors need to consider the idea that the creditworthiness of U.S. Treasuries could become an issue. People don’t like hearing this. They think it’s too aggressive.

Jeffrey Gundlach
But let me tell you. You know, the federal income tax used to be illegal. So they passed an amendment to make it legal. You know, according to its charter, the Federal Reserve is not allowed to purchase corporate bonds—but after the pandemic lockdowns, they purchased corporate bonds in a limited way.

Jeffrey Gundlach
So that was illegal. You know, in 2006 there was a $2 trillion worth of unsecured mortgage-backed securities offering memorandum. In plain English it said those mortgages can’t be modified under any circumstances. That’s what it said in the offering memorandum—but they modified millions of mortgages in the U.S. So the rules can change.

Jeffrey Gundlach
That’s why I’m very nervous about holding long-term Treasuries. In our portfolios, our exposure on this front is actually almost zero. And for those we do hold, more than a year ago, I went to our government bond team and said I want us to keep the maturity structure of our Treasury holdings unchanged. But for each maturity bucket, I want you to swap the bonds we hold into the bonds in that bucket with the lowest coupon rates. By doing that, we took the coupons on 10-year and longer Treasuries from 4.75% down to 1.5%. That way, in case they decide to modify these Treasuries to reduce coupon rates—well, if you hold a 6% coupon bond, that’s a 30-year Treasury issued about ten years ago with a 6% coupon. If they cut the coupon down to 1.5%, you’d take losses of more than 50 points.

Jeffrey Gundlach
So even if you think the probability of these risks isn’t that high, there’s no reason to take them. I think in the investment community we can all agree: if you take risk but get no return, don’t take it. The other side of the coin is: if you can eliminate a risk at zero cost—even if the cost is tiny—you should eliminate that risk.

Jeffrey Gundlach
That’s how I see it. Because of our debt burden, and because of the way we’re financing the government through $2 trillion deficits—that is completely unsustainable, so something has to change. If something is unsustainable, it has to stop. This thing has to stop. And politicians, of course, show absolutely no willingness to control spending. So ultimately it will have to be enforced by the market. So that’s why I think the path of least resistance for long-term Treasury yields is higher. And it’s a bit concerning, because we’re now seeing some credit stress emerging—because rates just had one of the biggest month-over-month jumps in history in March 2026. High-yield credit spreads have widened by about 75 basis points. So the risk in the current environment is visibly building, and I’m very interested in using a low-risk approach in the coming months and across the next few quarters.

Julia
Hey, everyone. Hope you’re enjoying this interview. If you can take a moment to click the Subscribe button, we’re working toward our next goal of reaching 100k subscribers. Your support really helps us reach that goal.

Julia
Thank you so much—please keep enjoying the interview that follows. Wow, Jeffrey, you provided such a great framework for our discussion. As you pointed out, you and I did our first interview together seven years ago. Back then, the debt was $22 trillion, and you pointed out that it’s now $39 trillion. That $40 trillion could very well become a real psychological threshold. And your argument was that in the next recession, interest rates will rise and the dollar will fall. Oh my gosh, you really caught my attention, because that sounds like a very painful wake-up call. I want to know: do you think investors intellectually understand this? Are their positions appropriate? Because I also heard from you…

Jeffrey Gundlach
No. Yes. The positioning is appropriate. Most U.S. investors, especially their positioning is just terrible. Over the past year and a half, I’ve been recommending that U.S. investors should hold stocks that are 100% non-U.S. stocks, and that they should hold them in foreign currency. That worked very well last year and also has been working pretty well this year. My top recommendation is that U.S. investors should buy emerging markets—not emerging market stocks, but emerging market stocks priced in local currency.

Jeffrey Gundlach
That’s the only thing that’s actually up this year. If you look at this year so far, almost nothing is up. I just looked. This year’s winners: gold is up by a few percentage points, the U.S. dollar index is up 1.7%, commodities are up, and the Bloomberg Commodity Index is up 21%. The only other thing up is emerging market stocks, up 1.4%. Meanwhile, you know, the U.S. stock market is down. I think it’s time. For investors, this is not that common. So a lot of people have been recommending that U.S. investors invest overseas, but it hasn’t worked for years. But now it’s starting to work. The most exciting thing for me in the investment world is when something fundamentally makes sense and then finally starts happening in real life—it’s happening now. These overseas investments are outperforming the U.S., and there’s still a long way to go. If you look at the MSCI World Stock Index, you can break it into two parts: the MSCI U.S. index and the MSCI World ex-U.S. index. About 15 to 20 years ago, the price-to-book ratios for stocks in the U.S. and for stocks in the rest of the world (excluding the U.S.) were the same. And now, the S&P 500 price-to-book ratio is more than double the rest of the world (excluding the U.S.). That’s extreme valuation overheating. Everyone seems to keep saying a word: “American exceptionalism.” It means nothing to me. All it means is that the U.S. performs better than other regions. When people say “American exceptionalism,” they mean U.S. performance—especially U.S. stocks—outperforming foreign markets. I think we’re in a multi-year phase now. We might be in the second inning of this nine-inning baseball metaphor, at most, and foreign markets are going to start outperforming the U.S. So I have an unusual asset allocation recommendation. I basically recommend 40% in stocks—all non-U.S. stocks. Some like Brazil, Chile, some Southeast Asia stocks, and so on. I only recommend about 25% in fixed income—all within 10 years—and all in the higher credit-quality segment. Then I recommend about 15% in commodities. I might put 10% in the Bloomberg Commodity Index and 5% in gold, because I think gold is very attractive right now. It was up sharply last year to a very bubble-like level of $5,500, but earlier this week it dropped to $40,100. So I think gold will continue to be a strongly performing asset. Then I think investors should hold the rest of their portfolio in cash, because as we move through 2026, asset prices will become cheaper. Of course, everyone is talking about one thing, and I’ve been very direct about it as well: private credit.

Jeffrey Gundlach
Yes. And the scale is astonishingly similar to the 2006 subprime and unsecured mortgage-backed loan markets. People say it’s not that big—only $200 to $300 billion. Well, that’s exactly the size of the market in 2006 during the run-up to the global financial crisis. I think this will be a very long, drawn-out story—not spreading as quickly as the subprime problem did, because subprime had pricing every day, every minute, because there was something called the ABX index for AAA-rated subprime products. You could see it starting to drop like a stone in early 2007. So you could see it go from 100 to 93 to 80. But this private credit thing is assessed only about once per quarter. So there will be very few data points.

Julia
Yes, Jeffrey. When you say that, you… talking about it reminds me—do you see the similarities between today’s private credit market and the 2006 subprime market? Because in the summer of 2007, you said at a meeting that subprime would be a complete disaster and would only get worse.

Jeffrey Gundlach
Exactly. That was at the Morningstar conference in June 2007. Yes. This year, I was invited to speak at the Morningstar conference. But due to a scheduling conflict, I couldn’t make it. But when I was thinking about what I would do for a keynote at Morningstar, I told myself maybe I should open with, “Private credit is a complete disaster and it will get worse,” because that was the kind of thing I said off the cuff in 2007 about subprime. I wasn’t planning to say it that way. It just came out. I said it. But I’m glad I did. And what I mean is: the problem, obviously, is that everyone is becoming increasingly aware of private credit—those valuations aren’t real valuations. Even the head of Apollo said something like that. The valuations aren’t real. So everyone basically knows that at best, you’re dealing with a moving average situation. I mean, about a year ago, I really started paying attention to private credit. That’s when a customer from an insurance company came in—a very large insurance company customer—and they were very deeply involved in private credit. They said they had several managers—eight managers—and eight managers held exactly the same positions, exactly the same. It was typical. It was kind of like club-style private credit—at least that’s what it was like before. Now there’s a little infighting within the family, but not long ago it was a happy family. He said, I have eight managers holding exactly the same positions. One was priced at 95, and another was priced at 8. What? Wait—what?

Julia
Different mark-to-market values. Oh my gosh, one…

Jeffrey Gundlach
Same holding, one priced at 95, the other priced at 8. That really blew my mind, because I hadn’t understood clearly what was going on there before. But then suddenly you start noticing—late last summer, or early fall—these strange things. You know, bonds falling from 100 to zero within a few weeks. And then what really impressed me was that a fund run by a very respected sponsor announced, just a few months earlier, that they were changing the fund’s valuation from 100 down to 81. That’s a huge write-down for a fund overnight. But what many people didn’t fully realize is that they probably weren’t marking every bond and every credit position they held from 100 down to 81. That probably didn’t happen. So you have to ask yourself: what exactly is the delta of those valuation changes? If half the funds are absolutely rock solid, and they only wrote down the other half, that means they wrote down that half by 38 points. If three-quarters of the funds are absolutely rock solid and I write down 25% of the funds, that means that 25% of the funds went from 100 to 24 overnight. So what exactly is happening here? It sounds like there’s a lot of opacity in these valuations.

Jeffrey Gundlach
I’ve consistently emphasized that private credit is a candidate area for trouble in the future, because it’s such a rapidly growing market. I made an analogy: anything that starts as a small market, becomes a thriving market, and becomes extremely popular. I said it’s like a small town in the Wild West. Okay, assume in 1820’s frontier you have an agricultural population, they all fear God, and you have a kind-hearted sheriff like in “High Noon,” everything is running fine. But then one day, a person finds gold three miles outside town. Suddenly all these opportunists—some are scoundrels—pour into town because they want to get rich. So suddenly the population is flooded with huge growth. Some are immoral. So you end up seeing a lot of crime, and things begin to deteriorate. That’s what happens. That’s what happened in the early part of this century in the CLO market, and that’s what happens in any market. Private credit is not special. It’s just a booming market. So suddenly you have a few companies that are doing fine, have good risk control, and they deliver decent returns.

Jeffrey Gundlach
Then for some reason, the industry becomes super hot—like private credit in 2021. Why did private credit become super hot in 2021? Because interest rates were still at zero. Then the government injected $7 trillion into the economy. So anyone with even a rough understanding of basic economics should know inflation would rise a lot. And zero interest rates would become a massive loss proposition. So of course, interest rates rose from about 1% to over 5% on 30-year Treasuries, which means a loss of about 50 points. And of course, the stock market—when you entered 2022 with extremely high P/Es—and experienced that huge rise in interest rates—also suffered massive losses.

Jeffrey Gundlach
So once you know that subordinated debt and publicly issued bonds are getting worse, and traditional stocks are getting worse, you look for other things. Remember how SPACs suddenly became popular? Yes. Like blind pools. Like, I don’t want stocks. I don’t want publicly traded stocks. I don’t want publicly traded bonds, because I know they’ll get worse. So give me something where I can’t map the risks of publicly traded bonds and publicly traded stocks onto some other new asset class—because if I can map the risks of publicly traded bonds and stocks onto another new asset class, then I wouldn’t like that new asset class because it contains risks I don’t want to take.

Jeffrey Gundlach
So give me something I don’t know what it is—and even better, don’t mark it to market, because then I don’t have to worry about volatility. That’s the private credit market. It’s a market that doesn’t get marked to market and is completely opaque. I would feel better because I don’t know what it is. So the argument about private credit became: hey, it’s a low-volatility asset—that’s not really true; or, hey, it has performed well over the past four or five years. Well, that’s because in 2022 publicly traded markets fell in fixed income by 12%, and stocks fell even more.

Jeffrey Gundlach
So of course, some things that don’t get marked to market will outperform the market. It’s like saying a certificate of deposit performs better than a 30-year Treasury. That’s because you don’t mark it to market. So that’s a fundamental flaw in the asset class. And there are a lot of these things, you know. Eventually, even now, there are ads on financial TV saying that in the good old days, ordinary people like regular blue-collar Americans could buy small slices of shares in great American companies like General Motors or Boeing. But now it takes longer to take companies private. So the poor American public doesn’t get access to these extremely great private investment opportunities. So now we’re doing an ETF that invests in private credit. The question then becomes: for endowments, having money locked up in products like this is fine. But now these funds allow people to redeem every quarter. Of course, we’ve seen that in March, in some cases, redemption requests were three times the amount allowed by the fund’s offering memorandum. So they allow 5%, but they’re dealing with 15%.

Jeffrey Gundlach
I heard today—people are discussing how to soften perceptions about this issue. There’s a sponsor talking about creating a fund that allows people to take out 7.5% each quarter instead of 5%. And then they say, in fact, we may even see whether we can get approval to provide monthly liquidity—so people can take out 2% each month instead of 5% each quarter. That starts to blur the line between public and private in a very troubling way. I mean, if these private products are going to provide monthly liquidity, why not make it weekly liquidity? Why not daily liquidity?

Jeffrey Gundlach
Well, at some point, you actually violate the concept that “private” means you don’t have liquidity. For that, you have longer investment horizons, and maybe you can earn higher returns. But once you start turning an alternative that was supposed to be a liquidity investment (and its mark-to-market drawbacks) into a… into a public-market product—because now you’ve got, in essence, a fundamental mismatch between being private and providing liquidity. It can’t coexist. They can’t coexist. These are two different realms. So when you twist something to broaden the buyer base or calm holders who are disappointed by the lack of liquidity, you get something that just can’t function. It doesn’t have any potential. It doesn’t even have the theoretical ability to function. That’s why private credit has to go through a major reshuffling.

Julia
You think, well, if they’re talking about “cockroaches,” does that mean a full-blown outbreak? Are we heading toward a crisis? How do you see this unfolding?

Jeffrey Gundlach
I think this area is over-invested. When I give speeches, sometimes you have an audience of 2,000 people. From about 2023 to now, in the Q&A, the very first question is always, “What do you think about private credit?” People ask it so often that I start answering like, “I guess you ask me because you hold a lot of private credit, right?” And they all say, “Yes,” everyone—everyone holds private credit. Everyone is involved. So there’s no new buyers. Only new sellers. We saw a glimpse of that liquidity shortfall with Harvard’s endowment. They had to go into the bond market to raise money to pay maintenance costs and salaries because when protests happened on campus and things got messy, donors stopped donating. Harvard has over $50 billion in an endowment, yet it didn’t have enough liquidity to pay out tens of billions in expenditures. That shows how tightly individuals, institutions, and pension plans are locked in. Another thing that isn’t discussed enough is that if you really dig into the details, there are podcasts made by former insurance reviewers—people with 40 years of experience—talking about private equity owning private credit, private equity buying insurance companies, then instructing those insurance companies to buy private credit, and then transferring part of the insurance company’s risk to reinsurers located in Bermuda, Barbados, or the Cayman Islands, where U.S. regulators have no visibility at all. In some cases, some private-credit companies that own insurance companies transferred those reinsurance risks to these islands, but they didn’t fully fund them. So they transfer, say, $400k of risk to the reinsurer at the insurance company level, but they didn’t use $50 billion in assets to fund it. They actually should have used $55 billion in assets to provide funding so there’s a 10% cushion to stay prudent. But instead, they underfund those reinsurer contracts. I’m sure not 100% of companies do this, but it’s also like the Wild West. You know, if they find gold in these reinsurance structures—for example, Apollo has Athena, so they have these captive insurance companies. It’s a bit like something learned from Warren Buffett. He started doing it a long time ago to make big money—and then they eventually claim to have transferred risks that in reality were not transferred. So some of these insurance companies or reinsurers have a surplus-to-liabilities ratio that isn’t 10%. It’s more like 1%.

Jeffrey Gundlach
If, if the mark-to-market valuation problem that they face today turns into actual defaults—if the U.S. economy falls into some situation that’s worse than a mild situation, worse than a mild recession—then you could get a very large problem.

Jeffrey Gundlach
So I’m very, very—I’ve been cutting risk for two years now. Our risk level is at the lowest point in DoubleLine’s 17-year history. And I’m nowhere near close to starting to add risk. I think we need— we need credit spreads to widen substantially before we can truly decide to start investing in, say, single-B securities or lower-rated instruments. So we’re just trying to preserve capital and wait for better opportunities, based on what we’ve set up for entering 2026—those opportunities will almost certainly come. It’s just that they might not happen this year, because as I said with private credit, you don’t get consistent information. Actually it’s only once per quarter. So we’ll wait and see. Here’s something I think. Anyone who’s been around this business for even half the time that I have knows that the redemption requests for private credit in June will be far higher than those in March. Because when you ask for 14% redemptions and they only give you 5%, the next thing you do is ask for 40%. Because then maybe you get a bit more. It’s like bond allocation. You know, I’ve been trading bonds for over 45 years. When the market is good—when a company’s credit is very popular—if they issue $500 million in bonds, and if you want $50 million, you don’t just subscribe for $50 million because demand is more than $500 million. You subscribe for $200 million so you can get your $50 million. These redemptions will be like that too. They want a certain percentage. This time they didn’t get it. They know next time there will be more demand. So in June 2026, you’ll see some pretty crazy redemption requests.

Julia
I know you’re right, Jeffrey. All right, I want to bring up another area you’ve been very focused on. I find this interesting that you pointed this out. The Federal Reserve follows the pace of 2-year Treasury yields, rather than leading them.

Jeffrey Gundlach
No doubt. Yes, without a doubt.

Julia
Okay, can you explain that to the viewers?

Jeffrey Gundlach
Well, I’ll tell anyone else: if they can use charting tools, just go back 30 years. If you want to, chart the federal funds rate—the official federal funds rate—and the 2-year Treasury yield. What you’ll see is when the federal funds rate stays stable for a while, you’ll start seeing the 2-year Treasury yield move. And if it starts to fall, it means the Fed is about to start cutting rates. If the 2-year Treasury yield rises, it means the Fed is about to start hiking. When the Fed started cutting rates in September 2024, we had a big gap. The 2-year Treasury yield was lower than the federal funds rate by about 175 basis points. That’s when they finally started cutting. Then when they started hiking in 2021 and 2022, the 2-year Treasury yield was far above the federal funds rate. When the Fed finally started hiking—I remember it was 25 basis points. That was at a meeting in February. After the Fed press conference ended, I immediately went on a financial show and said they should hike by 200 basis points because they were so far behind the 2-year Treasury yield. The Fed just followed the 2-year Treasury yield.

Jeffrey Gundlach
Really, you can see it in just the market behavior over the past six trading days, because the Fed’s news release and the fact that the federal funds rate remained unchanged were a week earlier—last Wednesday, a week earlier. What’s really interesting is that before the Fed announced anything, I was watching financial shows. Everyone focused on stocks was saying, yes, you know, things have gotten less convincing. But we had one thing in our favor: the Fed would cut rates twice this year. The Fed would cut rates twice. I said, no, they won’t. The 2-year Treasury yield is above the federal funds rate. Well, since then, the 2-year Treasury yield has surged and is now basically around 4%. So given where the federal funds rate is now, and given that the 2-year Treasury yield is more than 25 basis points above the upper bound of the federal funds rate, you cannot see the federal funds rate falling. So you’re going to keep hearing this. You’ll hear people talk about how perhaps the Fed’s next action is rate hikes. That’s such an aggressive shift in rhetoric compared with the consensus six trading days earlier (two rate cuts), even though I didn’t believe it back then. I mean, the 2-year Treasury yield was already higher than the federal funds rate at that time. It’s just that the Fed doesn’t have any super secret information. They’re simply looking at everything we’re all looking at. And the 2-year Treasury yield is the collective wisdom of investors who invest in safe assets and relatively short-term funds—that is where they think interest rates should be. That’s where the federal funds rate should be. I think we should abolish the Fed and use the 2-year Treasury yield directly as the short-term interest rate.

Julia
All right, so you think the next step is rate hikes. Why do you think that? All right, most likely that will be rate hikes. What do you think?

Jeffrey Gundlach
Of course. It looks like that. All right. If, of course, if West Texas Intermediate crude oil stays at around $95 per barrel, and if that holds through the entire summer, then the Federal Reserve will absolutely hike rates.

Julia
All right. And as you pointed out again in your argument, in the next recession, rates will rise and the dollar will fall. Regarding the recession—do you have a probability in mind? Like, how likely are we to enter a recession soon, or what’s the timeline? I—I—I.

Jeffrey Gundlach
I don’t—this isn’t the framework I think in, because there’s no science behind what’s driving this. But I—I—I—I—I—I think, I think that rising interest rates are facing upside pressure because of supply constraints and still-high inflation. I mean, for example, mortgage rates are back to 6.5%. If that persists, mortgage rates will hit 7% again. The housing market can’t even handle mortgage rates in the 5% range. I mean, if mortgage rates are even below 6%, the housing market is even more comfortable. If it’s now 6.5% and inflation remains in that high-inflation framework, they’ll keep moving higher. So yes, I—of course I think it’s highly likely that those in power will announce that a recession begins at some point in 2026. I’d give at least a 50% probability.

Julia
Okay. All right. I want to go back to our fiscal situation because you also wrote an article on The Economist—and I’ll share the link for readers. I think it was in December 2024. In that article, you laid out two possible outcomes. Do you think we’re headed toward currency devaluation, or the restructuring you mentioned earlier? My question is: what do you think the consequences would be, and what could trigger them?

Jeffrey Gundlach
Well, I think my basic scenario is that long-term Treasury yields will rise until they reach a level that’s hard to ignore. I’d say around 6%. I think if long-term rates rise to roughly 6%, people will start calculating and realize they’re heading toward more than $2 trillion in interest expense—this—it—it’s unsustainable. So at that point, you may see some concept of restructuring emerge. Or we could say, well, we’ll just go through a soft default and not pay the coupons, right? What would happen is we’d have a number of generations of time where we can’t borrow money, because the prices of these long-term bonds would collapse. No one would trust us to issue long-term debt again, and that would actually be ironic because it would become part of the solution. Because if we can’t issue any debt, we’d actually have to balance our budget. And that’s what we really should do. We shouldn’t run a debt-driven economy. You know, our $2 trillion is just borrowed money at the federal government level. So the trigger would be: you can’t ignore the interest expense that’s about to explode, and you have to take action. Another option is currency devaluation. You simply repay with… you know, cheaper dollars. You use inflation to repay—compared to…

Julia
Inflation.

Jeffrey Gundlach
Allowed—you would allow inflation to do it. And by the way, Julia, that’s what they did after World War II. Back then, the debt-to-GDP ratio was about the same as it is now. After the war, inflation was expected to be much higher, and it was. But they kept interest rates at extremely low levels. Treasury yields were 2.5%, while inflation climbed to high single digits. So basically you end up erasing the debt through inflation and experiencing very severe negative real interest rates. This led to a 40-year bear market in the Treasury market. And that’s what would happen here.

Jeffrey Gundlach
If we devalue. If we devalue, you’d live in a high interest-rate environment for a long time. But the other option is this soft default. I can’t think of other tools—basically it’s some combination of devaluation and soft default.

Julia
I think another worrying point is that technically we’re still in what you could call “the good times.” We haven’t encountered a major emergency yet. And that’s our fiscal situation.

Jeffrey Gundlach
Yes, that’s right. Well, that’s the whole issue. You know, we don’t—we don’t have a “rainy day fund.” You know, it’s not raining right now, but we’re already spending the rainy day fund.

Julia
You know, listening to you, there’s one thing that caught my attention. You’ve mentioned capital preservation and cutting risk multiple times in this conversation. It’s kind of like when I hear someone like you say that—it sparked my interest.

Julia
What are you most concerned about? Like, what risk are you facing today? Yes, I know you’re at DoubleLine and don’t cross the DoubleLine risk line. For you, what’s the risk that keeps you up at night—the risk you’re most worried about? If it isn’t— you know, not really something that keeps you up.

Jeffrey Gundlach
I—I—I really don’t think the interdependence between private credit and private equity will have a good outcome. I think it’s unhealthy. So I’ve really been saying this since about May of last year. It’s almost 10 months now. The next question will be: what happens in these private markets? And the headlines about private credit are already there. The alarm bells are pretty loud—very loud. And this isn’t a natural state.

Jeffrey Gundlach
So I think defaults in certain segments of the private credit market will lead to significant repricing and reduce the credit risk at that layer—like single-B or lower-rated.

Jeffrey Gundlach
So as far as investing goes, I rarely take risk. I want a great opportunity. I’ll only take risk if I think it’s a great opportunity. And I don’t think that high-yield spreads widening 50 to 70 basis points from historical lows is a great opportunity. I think high-yield spreads are 350. Now they’re around 425. You know, call me when they get to 700. That’s when I’ll start taking risk.

Jeffrey Gundlach
Most people don’t realize that the bank loan market—the three C bank loan market—is already a disaster. Prices are down substantially, and the spreads on three C bank loans are, in general, about 2,000 basis points at the index level. That means no one thinks they’ll get paid. So defaults are coming.

Julia
Yes, I like that. “Wait for a great opportunity.” Okay, you also mentioned something else in the conversation, and you predicted it very well. In fact, this was called one of the best market predictions of the year—at least one of those lists by Business Insider, I think. But in March 2025, in your live broadcast, you said gold—around $2,915—could rise to $4,000. Then in October, it actually did. Of course, we also saw it touch $5,500 earlier this year. Now it’s back— I think I looked at it today. I’m holding gold. I looked at it today, about above $4,300. But you said it was an opportunity—are you buying gold right now? Or how are you playing gold?

Jeffrey Gundlach
I actually bought some. I bought some gold mining stocks last June—that was my last move related to gold—and I was super lucky. Pure luck, because it happened right when they started taking off. But there’s an interesting story about my gold prediction. At the time, gold was around $2,970 on television. The interviewer asked me, do you think it will break $3,000? I said, what kind of prediction is that—up 1%? And yes, I wasn’t really planning to say that. But given the way the question was asked, I said, you know what? It will be above $4,000 this year. Forget $3,000—it will be above $4,000. And it made me the honest person. I mean, it ultimately went up to around $4,500 last fourth quarter. And later it went above $5,000. So I—I believe gold is real money. I think people are starting to realize that. Central banks will become a huge ongoing source of demand for gold. In the past, before Nixon got rid of the gold standard, central banks had about 70% of their reserves in gold, and then it fell to 20%. Then everyone moved to the dollar as the preferred reserve asset. Well, gold is rising again. It’s now up to about 30% of central bank reserves. And I think there’s every reason to believe the proportion of gold in reserves could reach 50%, and that would create huge demand for gold. So here, gold is no longer something for survivalists or quirky, crazy speculators. It’s a real asset class—being reintroduced to the central bank world as a true asset class—worth putting a third of your reserves into. So I—I just can’t see a reason for anyone to sell.

Jeffrey Gundlach
Gold. I’m not a silver fan. I know a lot of people like silver because, you know, it makes money grow money. When gold’s beta is working positively, silver goes more. But silver is more of an industrial metal. I think gold is the real thing, so I’m sticking with the standard rather than derivatives.

Julia
You’ve been in the investment business for 45 years. No. This—this is—one of the more difficult environments from your perspective? Like, it’s harder to make money?

Jeffrey Gundlach
No. The hardest environment for me was 2021, when the bond market had no yield. There was a moment when the only way to get 5% from U.S. fixed income was to buy the junk bond index and add 50% leverage—and hope there were no defaults. Because the junk bond index yield was 3.5%, and you hope there were no defaults. Believe it or not. If you really did that—if you bought a 3.5% yield index and added 50% leverage just to get that 5%—you would go bankrupt because your financing cost rose to 5.375%, while your coupon payments were still 3.5%. So you had almost a 2% negative arbitrage, and you—you were bleeding every day, all the time. And the price of the junk bonds was far below the cost. So you would get margin calls.

Jeffrey Gundlach
So in fixed income, in general investing, we know there’s fear and greed. Greed drives people. But fear becomes more powerful than greed. But the most dangerous thing isn’t fear or greed—it’s “demand.”

Jeffrey Gundlach
“I need to earn X%.” Because in 1993, I was in the office of the treasurer of a major university. The president stopped by. He asked the treasurer, how can we make our endowment earn 6%? Well, endowments have to earn 6%. The treasurer said that’s impossible because at the time Treasury yields were 3%, and nothing could produce 6%. The president told the treasurer, that’s the wrong answer. He asked how we could earn 6%. He said he didn’t want to hear “we can’t do it.” He said no—you have to earn 6%. What are you going to do? Well, in the end, people ended up doing crazy things. For example, Orange County and some odd Mae bonds with weird features. Those ultimately fell from 100 to around 40 during the bond bear market in 1994. And that bear market wasn’t even that bad. So to get 6%, they lost 60%. So investing based on demand is the dumbest way. You can only say, we’ll be below the target this year and earn this number; next year we earn that number. And then, on average, we hit 6%. Never invest based on demand, because you always end up taking irrational risks.

Julia
That’s a great lesson, Jeffrey. That’s why you’re the “Bond King.” You’re the Bond King. I know you might not say it yourself, but you’re the one who stands.

Julia
So can I ask you… can I ask you about California? You recently posted a tweet—an X post. Because people frequently ask you about municipal bonds, and you said you usually don’t have much to say. But now, seeing the deficit caused by absurd spending and tax policies, as well as accelerated erosion of revenue, I can say: avoid all general obligation municipal bonds in California, Illinois, and New York. I’ve never bought general obligation bonds.

Jeffrey Gundlach
We can…

Julia
If you live in California, how does it look? Are they finished?

Jeffrey Gundlach
I hold California municipal bonds, but I don’t hold general obligation bonds. I only hold those that are attached to some income stream—like water projects, you know, where the revenue stream will exist. And I only buy bonds rated investment grade single-A or higher. That’s not because of insurance. It’s because the underlying really does have that revenue stream. For general obligation bonds, I…

Jeffrey Gundlach
I, I think, if so, I would most want to avoid Chicago municipal bonds. I just can’t imagine why someone would be willing to take the risk that gets changed by legislation. I mean, anything can happen. These rules can be changed. They can say if your income is above a certain level, the municipal bonds become taxable. They can say if your income exceeds this number, we’ll cut your bond coupons. Anything can happen. And with so much wealth inequality—this inequality is increasing and increasingly reflected in political activity—you have to pay extreme attention to these things.

Jeffrey Gundlach
Yes, California might try to impose a billionaire tax. I think it will be tied up in court for years before it’s truly implemented—because there are huge interest groups that want to drag it into litigation. So I’m not that worried about the billionaire tax itself. But it is an alarming trend. I know Bernie Sanders wants to propose this nationwide.

Julia
Do you think California is heading toward bankruptcy?

Jeffrey Gundlach
To some extent, it already is bankrupt. I mean, we have too many… we were supposed to have a balanced budget, but we’re nowhere close to a balanced budget. You know, we, we, we started projects like high-speed rail. It was supposed to run between San Francisco and Los Angeles. It was scheduled to be finished by 2020. The last time I checked, it was 2026—and they haven’t laid one inch of track. So we’re severely behind schedule. The budget was originally $30 billion. Now they’re saying if you want to finish high-speed rail from Los Angeles to San Francisco, it will exceed $130 billion. So there’s a $100 billion overshoot. Therefore, they’re no longer saying we’ll spend $130 billion. They decided to build it with about $30 to $35 billion between Merced and Bakersfield. That’s an absolutely unnecessary segment that nobody needs.

Jeffrey Gundlach
That’s absurd. So yes, I think as California raises taxes—when you talk about billionaire taxes, what they’re doing is just exhausting the tax base. In the past 12 months, we’ve seen the five richest people in California leave the state, and this will only accelerate. California thinks that if you leave, they’ll tax you with a wealth tax. Good luck. Good luck trying to track down those people who live in Tennessee, because you—you have to send them the bill.

Julia
Oh my gosh. What are you going to do?

Jeffrey Gundlach
What can you do? Don’t move back?

Julia
Yes, you just push so many people away. They come to where I live, North Carolina, and drive up our home prices.

Jeffrey Gundlach
If they impose a wealth tax, the cost of collecting it would be higher than the tax revenue they generate.

Julia
That’s a good point. Jeffrey, before I let you go, can I ask you one last question? All right. I don’t know if you’re in a rush. I’m happy to talk a little longer, but I also have to respect your time.

Julia
Okay, this question is: what’s something right now that, if you make a prediction about it, may not look like consensus and definitely isn’t obvious—but maybe in a year, if we have this conversation again, it will be more widely accepted?

Jeffrey Gundlach
I think the next presidential election will have three political parties field candidates?

Julia
Do you think that candidate would be viable? Because…

Jeffrey Gundlach
That would be interesting. The Democrats and Republicans have already created huge barriers for third parties, making it hard for them to succeed. But interest in third parties will be high enough to overcome those barriers.

Julia
I wonder if that means we’re heading into the “fourth turning.”

Jeffrey Gundlach
I, I, I talked with Neil Howe about 16 or 17 years ago. That was interesting because I didn’t know who he was, and I’d never heard of the “fourth turning.” But when we talked, we had exactly the same views, even though our wording was slightly different. And I fully understand what Neil meant by the “fourth turning.” I said, I think the big change—the big reset—if you want to put it that way—the “restructuring” of our system, is already seriously overdue. I said I think it will happen around 2030, and he agreed. I still think it’s around 2030. I think Neil still believes that’s a reasonable timeframe. So we’re very aligned conceptually on this idea.

Julia
Yes, on our channel we also really like Neil Howe, and we might see that climax soon. I have to say, Jeffrey Gundlach, it’s been a real honor to have you back on the show. I’ve really enjoyed our conversation. Once again, you’re one of my favorite people to interview, and having you on the show is a real pleasure. It means a lot to me, and it’s an important milestone for me as a podcast host. I’m incredibly grateful. I hope this isn’t our last conversation. I’d love to welcome you back on the show anytime you’re willing to give us time. Thank you so much. Jeffrey Gundlach, DoubleLine Capital founder and CEO, “Bond King”—I really appreciate you. Thank you again.

Jeffrey Gundlach
Thank you, Julia. I really enjoyed our conversation.