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(Bloomberg) -- DoubleLine Capital chief executive Jeffrey Gundlach warned that the next US downturn could trigger a debt crisis that sends long-term Treasury yields sharply higher — defying decades of conventional wisdom that bonds will always serve as safe haven during times of economic strife. Such a scenario could push the Federal Reserve and the Treasury into unconventional policies, such as the central bank buying long-dated bonds in a repeat of Operation Twist, or even a debt restructuring. He said he’s focusing on low-duration assets to shield Doubleline’s funds against further increases in interest rates. “If there’s a recession, there’s going to be incredible attention paid to the fiscal situation,” he said at an event in New York. “You would have the budget deficit go easily to 12% of GDP. That would create $3 trillion of interest expense probably per year, and you just can’t do it.” Gundlach’s views, while extreme, reflect growing investor concerns over the diversification benefits of fixed income, which are traditionally seen as buffering losses from stock portfolios during economic downturns. In recent years, the inflationary nature of recent shocks has pummeled bonds, sometimes leading them to sell off at the same time as equities. Should the next recession prove similarly inflationary, that would limit the scope for central bankers to stimulate the economy by lowering interest rates. Gundlach cited the breakdown of closely-watched market correlations, including the ratio of gold and copper to Treasury yields, since 2020 as evidence of a regime change where the secular direction for interest rates is higher. The dollar, meanwhile, doesn’t hold the same inverse relationship to US stocks, he said. “We’re in backward land and in the next recession long-term rates are going to go up and they’ll go up because of the debt crisis that it’s going to usher in,” he said. Gundlach founded DoubleLine in 2009 after a contentious exit from TCW, where he’d become a star bond manager. DoubleLine managed $95 billion in assets and had more than 250 employees as of March. Gundlach said he is now “a little less negative on the long end” than he was a year ago but remains positioned for yields to ultimately move higher. He sees the potential for greater US policy interventions to cap the bond selloff should it continue. One possibility would be a repeat of Operation Twist, in which the Federal Reserve would suppress long-end rates while keeping short-end rates elevated. “I think they would do that somewhere around 6.5%,” he said of the yield level likely to trigger action. Another option would be a restructuring of Treasury debt — a risk he has warned about before. That would involve cutting coupon payments across outstanding bonds. “You could just say every Treasury bond that has a coupon above one, your coupon is now one. That would reduce your interest expense overnight by 75%,” Gundlach said. “Of course, every investor would erupt in anger and they’d never look to you again. You’d never be able to borrow money again.” More stories like this are available on bloomberg.com ©2026 Bloomberg L.P. Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates. Oops! Looks like you have exceeded the limit to bookmark the image. Remove some to bookmark this image.
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