| TOKYO, Sept 14
TOKYO, Sept 14 The long-term decline in global
bond yields is over and investors are watching out for a likely
fiscal expansion in the world's major economies where monetary
stimulus has reached its limits, Jeffrey Gundlach, chief
executive officer of DoubleLine Capital, said on Tuesday.
Speaking at an investment conference held by Mizuho
Financial Group in Tokyo, Gundlach also said Japan's
experiment with negative interest rates showed to the world that
the policy does not work.
"I have learned from my 35 years in the investment business
that when people say something will never happen, it means, it's
about to happen," said Gundlach, challenging many investors'
belief that interest rates can never rise because of the
stagnation in global economic growth.
"If you watch very carefully, interest rates have already
secretly started to rise."
Over the past week, long-term interest rates in Japan,
Europe, and the United States rose between a quarter and a third
of a percentage point.
Germany's benchmark 10-year Bund yield climbed
into positive territory last Friday for the first time since
June's Brexit vote. In Japan, the 10-year JGB yield was about to
emerge from sub-zero territory, rising to minus 0.010 percent
on Monday. The yield on the 10-year U.S. Treasury
note stood at 1.672 percent on Monday.
Gundlach said it became clear that negative interest rates,
adopted by the European Central Bank and the Bank of Japan, have
not had the effect that policymakers wanted on investors.
"The Japanese yen rallied since rates went negative
in Japan. The Nikkei (stock average) has gone nowhere,
and the economy has not improved," said Gundlach, noting that
the situation is the same in Europe as negative rates spur
incremental saving instead of consumption.
Gundlach said Japanese bank stocks have underperformed the
broader market since the BOJ cut interest rates to below zero
because investors think banks cannot survive many years of
negative rates. And destroying the financial system is no way to
stimulate the economy, he said.
"I think central bankers are learning this fact with
accumulation of the evidence of markets and will abandon
negative interest rates in favor of another form of stimulus --
fiscal stimulus, some call it helicopter money. And I think it
That prospect of fiscal stimulus has been quietly boosting
inflation expectations since June, Gundlach said, as investors
are starting to sense that inflation is coming in future years.
"This is very bond unfriendly. If you own bonds, fiscal stimulus
is not positive."
At a summit this month, G20 leaders repeated their view that
monetary policy alone could not create balanced economic growth.
Japan has adopted fiscal stimulus while leaders from southern
Europe last week called for action to boost flagging growth in
DoubleLine had more than $100 billion in assets under
management as of June 1.
(Editing by Hugh Lawson)