The rate rally on the long end of the curve this year caught most big investors by surprise but Doubleline’s funds were well positioned. Gundlach’s funds had exposure via last cash flow mortgage bonds and “Z” bonds which price off of the 10yr or further point of the treasury curve. With the 10yr down ~50bps YTD, these bonds have had substantial price appreciation.
Looking at some updated holdings as of May month end, I noticed that Gundlach and team took down duration by selling out of many of the aforementioned long duration bonds. While this shouldn’t be a declaration that “rates are going up”, it’s interesting to see that Gundlach who has been bullish on longer duration bonds has started to pare back exposure.
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