(Adds additional Gundlach comments)
By Sam Forgione
NEW YORK, May 4 (Reuters) - Jeffrey Gundlach, chief executive of investment firm DoubleLine Capital, said on Monday he recommended that investors buy Puerto Rican municipal bonds partly for their yield, despite their risk.
“Puerto Rican muni bonds are my recommendation for a risky thing to buy because they have priced in a lot of problems,” Gundlach said at the annual Sohn Investment Conference in New York City.
Gundlach, an influential bond investor, said investors could earn a tax-free yield of about 11 percent on Puerto Rican municipal bonds that mature in 2035, and noted that the governor of Puerto Rico was committed to repaying the debt in full and on time. He said he had started to buy the bonds.
Since Puerto Rico pension obligation bonds are owned largely by Puerto Rican citizens, he said, there was motivation against default that would “wipe out the savings pool.” He said he had bought such bonds maturing in 2039.
Puerto Rico’s benchmark general obligation bonds briefly traded higher, at 80.46 from an open of 78. They later fell back to 78.88.
Gundlach also said he believed rates had bottomed and warned that high-yield bonds do not perform as well as U.S. Treasuries when the Federal Reserve increases interest rates. He said, however, that he was not worried about high-yield bonds in the near-term.
“There are a couple years of runway perhaps, but you don’t want to bet heavily on high-yield bonds if the Fed’s going to start raising interest rates,” he said.
The Los Angeles-based DoubleLine had $73 billion in assets under management as of March 31, 2015.
Reporting by Sam Forgione; Editing by Steve Orlofsky