0 Jeffrey Gundlach Chief Executive Officer DoubleLine Capital July 2, 2015 Summer Insects
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Jeffrey Gundlach Chief Executive Officer
DoubleLine Capital
July 2, 2015
Summer Insects
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Negative Interest Rates
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Borrow Infinite Amount at Negative Interest Rates
• Borrowing infinite amounts of money at negative interest rates allows the borrower to get paid by the lender. This is the opinion of the presenter and points out the absurdities of negative interest rate lending.
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Europe and Japan Bond YieldsAs of 6/8/15
Source: Bloomberg
Nominal Yields on Government Bonds1y 2y 3y 4y 5y 6y 7y 8y 9y 10y 30y
Switzerland ‐1.09% ‐0.95% ‐0.88% ‐0.66% ‐0.47% ‐0.34% ‐0.20% ‐0.12% 0.02% 0.12% 0.79%Denmark ‐0.82% ‐0.48% 0.55% 0.08% 0.43% 0.72% 0.98% 1.51%Sweden ‐0.36% ‐0.22% ‐0.07% 0.05% 0.35% 0.50% 0.63% 0.83% 0.94% 0.95% 1.58%Germany ‐0.28% ‐0.18% ‐0.12% 0.01% 0.18% 0.28% 0.41% 0.58% 0.73% 0.88% 1.56%Finland ‐0.22% ‐0.16% 0.02% 0.13% 0.25% 0.31% 0.42% 0.68% 0.78% 0.92% 1.56%France ‐0.19% ‐0.14% ‐0.02% 0.15% 0.34% 0.48% 0.68% 0.88% 1.04% 1.20% 2.03%Belgium ‐0.18% ‐0.14% ‐0.01% 0.19% 0.34% 0.54% 0.75% 0.90% 1.06% 1.21% 2.00%Netherlands ‐0.18% ‐0.16% ‐0.04% 0.06% 0.22% 0.45% 0.62% 0.81% 0.93% 1.07% 1.66%Austria ‐0.17% ‐0.10% 0.04% 0.19% 0.31% 0.51% 0.74% 0.88% 0.88% 1.02% 1.71%Portugal 0.01% 0.11% 0.51% 1.22% 1.67% 2.01% 1.90% 2.57% 2.70% 2.96% 3.84%Spain 0.02% 0.04% 0.29% 0.56% 1.03% 1.40% 1.60% 1.89% 2.16% 2.24% 3.27%Italy 0.02% 0.18% 0.48% 0.80% 1.11% 1.46% 1.74% 1.98% 2.19% 2.25% 3.27%
Japan ‐0.02% ‐0.01% 0.00% 0.03% 0.10% 0.15% 0.23% 0.32% 0.39% 0.48% 1.54%US 0.25% 0.68% 1.06% 1.71% 2.12% 2.38% 3.11%
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European Central Bank Bond Repurchase Program January 1, 1995 through January 31, 2015
Source: Treasury Departments, Dealogic, Morgan Stanley Research, Wall Street Journal as of January 31, 2015. €60 billion = $67.404 as of today, June 6, 2015. ECB = European Central BankYou cannot invest directly in an index.
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Sovereign Net Issuance (After Central Bank Purchases) January 31, 1980 through January 31, 2015
UK = United Kingdom, US = United States, EUR = EuropeSource: Morgan Stanley Research, Dealogic, Haver Analytics, OECD, DMO, U.S. Bureau of Public DebtYou cannot invest directly in an index.
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Eurozone 2‐year Yields July 2, 2013 through June 2, 2015
Source: DoubleLine, BloombergGTDEM = German 2‐year Treasury, GTFRF = French 2 –year Treasury, GTESP = Spanish 2‐year Treasury, GTIEP = Irish 2‐year Treasury, GTCHF = Swiss 2‐year Treasury, GTDKK = Denmark 2‐year Treasury.You cannot invest directly in an index.
Denmark
Switzerland
Germany
SpainIrelandFrance
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Eurozone 10‐year Yields July 2, 2013 through July 2, 2015
Italy
Switzerland
Germany
SpainIreland
France
Greece
Source: DoubleLine, BloombergGTDEM = German 10‐year Treasury, GTFRF = French 10 –year Treasury, GTESP = Spanish 10‐year Treasury, GTIEP = Irish 10‐year Treasury, GTCHF = Swiss 10‐year Treasury, GTDKK = Denmark 10‐year Treasury, GTGRD = Greek 10‐year Treasury, .You cannot invest directly in an index.
DenmarkGermany
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What Does the Bond Market Think is the Probability of a Fed Hike?
Source: Bloomberg; Doubleline as of June 8, 2015Bond Market = Calculation implied by the prices of the Fed Funds futures.
0%10%20%30%40%50%60%70%80%90%
100%
12/11/2014
12/15/2014
12/19/2014
12/23/2014
12/27/2014
12/31/2014
1/8/2015
1/12/2015
1/16/2015
1/20/2015
1/24/2015
1/28/2015
2/3/2015
2/7/2015
2/11/2015
2/15/2015
2/19/2015
2/23/2015
2/27/2015
3/5/2015
3/9/2015
3/13/2015
3/17/2015
3/21/2015
3/25/2015
3/29/2015
4/2/2015
4/6/2015
4/10/2015
4/14/2015
4/18/2015
4/22/2015
4/26/2015
4/30/2015
5/6/2015
5/12/2015
5/18/2015
5/22/2015
5/28/2015
6/3/2015
Market‐Based Probability of a Fed Rate Hike
JunSepDec
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Implied Probability of Fed Funds Target Rate Hike
Source: Bloomberg from June 1, 2015 through February 1. 2017.
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Hourly Earnings and Fed Funds TargetJanuary 1, 1986 through April 30, 2015
Source: MinackRHS = Right hand sideYou cannot invest directly in an index.
‐1
1
3
5
7
9
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
1986
1986
1987
1988
1989
1990
1991
1991
1992
1993
1994
1995
1996
1996
1997
1998
1999
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2001
2001
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2003
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2006
2006
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2008
2009
2010
2011
2011
2012
2013
2014
2015
(%)
YoY%
Hourly Earnings and Fed Funds TargetHourly Earnings*
FED FUND Target (RHS)
*Total Private Hourly Earnings; Non‐Farm Pre‐2007
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Central Bank Policy Rates2006 through May 31, 2015
%
NZ = New Zealand, ECB = European Central Bank, NBER = National Bureau of Economic ResearchYou cannot invest directly in an index.
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Escher:The Fed & The Dollar
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U.S. Dollar Index Spot December 31, 2007 through July 2, 2015
Source: Bloomberg Financial Services, DoubleLine Capital LPDXY = DXY is the US Dollar Index (USDX) indicates the general value of the US dollar. Average exchange rates between the US dollar and six major world currencies.An investment cannot be made directly in an index. Past performance is no guarantee of future results.
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Global GDPAs of April 16, 2015
Source: The Economist “The Great Bond Conundrum”, April 16th 2015An investment cannot be made directly in an index. Past performance is no guarantee of future results.
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US Inflation Breakevens: Below the 2% “Target” Out to 30‐Years (!) July 2, 2010 through July 2, 2015
Source: Bloomberg Financial Services, DoubleLine Capital LPUSGGBE02 Index = U.S. Breakeven Index for years indicated (02= 2 Yr). Yields are yield‐to‐maturity and pre‐tax. The rates are United States breakeven inflation rates. They are calculated by subtracting the real yield of the inflation linked maturity curve from the yield of the closest nominal Treasury maturity. You cannot invest directly in an index.
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U.S. & Eurozone Core CPI (Year‐Over‐Year)January 1, 2011 through January 31, 2015
Source: Datastream, Business Insider, February 5, 2015 CPI = A measure that examines the weighted average of prices of a basket of consumer goods and services such as transportation, food and medical. Eurozone = The collective group of countries which use the Euro as their common currency. ?Eurozone definition is calculated without “shelter”. There are 17 countries in the Eurozone including Austria, Belgium, Cyprus, Estonia, Finland, France, German, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain.YoY = year‐over‐year.You cannot invest directly in an index.
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U.S. Nominal GDP Growth Since 19001900 through 2012
Source: BAML Global Investment Strategy, Global Financial Data GDP = Gross Domestic Product. The monetary value of goods and services produced within a country’s borders. Nominal GDP is not adjusted for inflation. You cannot invest directly in an index.7‐year mvg avg = 7 year moving average
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Source: Bloomberg, DoubleLineGDP = Gross Domestic Product. The monetary value of goods and services produced within a country’s borders. Nominal GDP is not adjusted for inflation. YoY = Year‐over‐Year. You cannot invest directly in an index. SA = Seasonally adjusted.You cannot invest directly in an index.
U.S. Nominal GDP (YoY) % Change vs. 10‐year U.S. Treasury Yields March 31, 1947 through March 31, 2015
%
‐5
0
5
10
15
20
25
3/31
/194
7
3/31
/195
0
3/31
/195
3
3/31
/195
6
3/31
/195
9
3/31
/196
2
3/31
/196
5
3/31
/196
8
3/31
/197
1
3/31
/197
4
3/31
/197
7
3/31
/198
0
3/31
/198
3
3/31
/198
6
3/31
/198
9
3/31
/199
2
3/31
/199
5
3/31
/199
8
3/31
/200
1
3/31
/200
4
3/31
/200
7
3/31
/201
0
3/31
/201
3
U.S. GDP Nominal Dollars YoY SA 10‐Year Treasury Yield
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Rising Interest Rates
Ernest Hemingway
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"You can't get away from yourself by moving from one place to another.“
“I can't stand it to think my life is going so fast and I'm not really living it."
"This is a good place" he said."There's a lot of liquor" I agreed.
"How did you go bankrupt?", Bill asked."Two ways." Mike said. "Gradually, then suddenly."
Source: Good Reads “Sun Also Rises Quotes”
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U.S. 2‐Year TreasuryDecember 31, 2009 through June 30, 2015
Source: Bloomberg Financial Services, DoubleLine Capital LPGT02 = US 2 Year Treasury Bond. You cannot invest directly in an index. Past performance is no guarantee of future results. You cannot invest directly in an index.
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U.S. 5‐Year TreasuryDecember 31, 2009 through June 30, 2015
Source: Bloomberg Financial Services, DoubleLine Capital LPGT5 = US 5 Year Treasury Bond. You cannot invest directly in an index. Past performance is no guarantee of future results. You cannot invest directly in an index.
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U.S. 10‐Year TreasuryDecember 31, 2009 through June 30, 2015
Source: Bloomberg Financial Services, DoubleLine Capital LPGT10 = US 10 Year Treasury Bond. You cannot invest directly in an index. Past performance is no guarantee of future results.
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U.S. 30‐Year TreasuryDecember 31, 2009 through June 30, 2015
Source: Bloomberg Financial Services, DoubleLine Capital LPGT30 = US 30 Year Treasury Bond. You cannot invest directly in an index. Past performance is no guarantee of future results.
25Source: “What happens when US rates rise? Three Scenarios by Duncan Weldon, March 3, 2015.
10‐Year U.S. Treasury Yields & Fed Funds Previous Hiking Cycles
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U.S. 10‐Year Yields and Fed Funds RateDecember 31, 1962 through July 2, 2015
Source: Bloomberg Financial Services, DoubleLine Capital LPYou cannot invest directly in an index.
27Source: Bloomberg, DoubleLine
10‐Year U.S. Treasury Yields vs. Fed Funds Current “Hiking Cycle” 7‐2‐14 through 7‐2‐15
Fed Blinks
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Chuang Zhu
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High Yield Credit Spread and Fed Funds March 31, 1987 through July 2, 2015
Source: Bloomberg; DoublelineHY = High yield bonds. Blue lines indicate the beginning of a fed hiking cycle. FDTR = Federal Funds Target Rate for short‐term interest rates. GT10 = US 10 Year Treasury
End
QE
End
QE
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Percentage of Covenant‐Lite Loans January 1, 2005 through April 1, 2015
Cov‐Lite = Covenant Lite refers to the number of covenant's retained by the investor.You cannot invest directly in an index.
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First‐Lien Leveraged Loan Covenant StatisticsJanuary 1 1997 through March 31, 2015
Distribution by Number of Covenants
0%
25%
50%
75%
100%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
LTM 3/31
/15
2 or less 3 4 or more
Source: S&P Capital IQ LCD, McGraw‐Hill Financial website You cannot invest directly in an index.LTM = Last Twelve Months
Average Number
0
1
2
3
4
5
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
LTM 3/31
/15
Excludes Covenant-Lite Deals
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HY and HY Energy SpreadsAs of June 8, 2015
Source: Bloomberg, DoubleLineHY = High Yield sector as represented by BofA/Merrill Lynch US Cash Pay High Yield Index (JOAO). HY Energy is the energy subsector of JOAO Index. OAS = Option Adjusted spread of High Yield as represented by the index over 10 year US Treasury bonds in basis points.You cannot invest directly in an index.
300
400
500
600
700
800
900
GOVT
OAS
HY and HY Energy Spreads
HY
HY Energy
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High Yield Energy PercentageEvery Year End, 2014 through October 17, 2014.
Source: Business Insider “Cashing Oil Prices Could Bring The US Fracking Boom To A Sudden And Disastrous End”, November 3, 2014An investment cannot be made directly in an index. Past performance is no guarantee of future results.
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Energy Firms Could Migrate Downward and Flood High Yield Indices As of April 15, 2015
Source: BloombergBloomberg US High Yield Energy Index (BHYCEN) is the energy subset of the Bloomberg Global High Yield Corporate Bond Index which is rules based, market-value weighted index engineered to measure the non-investment grade, fixed rate, taxable global bond market. Bloomberg US High Yield Materials Index (BHYCMA) is the materials subset of the Bloomberg Global High Yield Corporate bond index which is rules-based, market value-weighted index engineered to measure the non-investment grade, fixed rate, taxable global bond market.You cannot invest directly in an index.
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Energy Firms Could Migrate Downward and Flood High Yield Indices: Banks and Autos Succumbed to this Trap
Source: Bloomberg Briefs, BofA/Merrill Lynch Bond Indices as of dates indicated for each subsectors downgrade period. Automotive 4/30/2005 through 12/31/2005, Banks 12/31/2008 to 6/30/2009. You cannot invest directly in an index.
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Energy Firms Are Maxing Out Revolver Capacity
Source: Bloomberg Briefs, BofA/Merrill Lynch Bond Indices as of March 31, 2015.DoubleLine Total Return owns 0% of Sabine Oil & Gas, Samson Resources, MRC Energy, Breitburn Operating, Mid-Con Energy, Midstates Petroleum, Resolute Energy. You cannot invest directly in an index.
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U.S. Credit: Maturity Wall of Bonds and LoansJanuary 1, 2015 projected through 2025
Source: Minack Advisors
38Source: Bloomberg, Federal ReserveBond maturities of the Federal Reserve’s balance sheet starting January 1, 2015 through December 31, 2042. You cannot invest directly in an index.
Maturities of Fed‐Held TreasuriesMinimal for ’15, Peak ‘18‐’19
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Jeffrey Gundlach Chief Executive Officer
DoubleLine Capital
July 2, 2015
Summer Insects
1
DisclaimerImportant Information Regarding This ReportThis report was prepared as a private communication and was not intended for public circulation. Clients or prospects may authorize distribution to their consultants or other agents.
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