Is Cash Trash? DoubleLine Has Some Thoughts

Investors starved for yield since the great financial crisis can now have it merely by holding cash reserves. At least for now (as of November 8), the U.S. three-month Treasury Bill was yielding 5.4%, up from 0.50% at the end of 2021 and 4.4% at the end of last year. But they may not have it for long, with Los Angeles bond house DoubleLine casting doubt on the “T-Bill-and-chill” strategy.

Questioning ‘T-Bill and Chill’

Firm founder Jeffrey Gundlach has said in recent interviews that a recession, which he’s forecasting during 2024, could cause the Federal Reserve to drop rates enough to make the strategy of holding cash reserves or rolling three-month bills less attractive than locking up money in two-year or three-year instruments.

Gundlach posted on the platform X on November 3 that in discussing “T-bill and chill,” he did not recommend the strategy. Rather, he said he favored “mid-to-high quality 2-3 years credit (yields of 7-8%) combined with intermediate-to-long term Treasuries.”

ETF Trends caught up with DoubleLine’s Ken Shinoda, who confirmed the firm’s views, saying “the market seems to be agreeing with us either that the Fed sometime next year cuts either because it’s reached its goal or because there’s some type of recession or they just don’t need to be so restrictive.”

Shinoda continued, “Investors [may wind up saying]‘Oh I should have bought some of those 2-3 year bonds,’ [which are]the cheapest we’ve seen on an absolute yield basis in over a decade.”

Shinoda co-manages the firm’s flagship DoubleLine Total Return Bond Fund (DBLTX) with Gundlach and Andrew Hsu. He also manages DoubleLine’s more credit-aggressive DoubleLine Income Fund (DBLIX) with Hsu and Morris Chen, and the DoubleLine Mortgage ETF (DMBS) with Gundlach. (More on the ETF and mortgages later.)

Indeed, bonds have had a blistering run since November 1’s Fed meeting, with the yield on the U.S. 10-year Treasury retreating to 4.5% from 4.9%. For the five trading days since, and including, last Wednesday, the iShares 20+ Year Treasury Bond ETF (TLT), which many investors use to track the performance of the long end of the U.S. Treasury yield curve, has rallied more than 5.6%.