Billionaire 'bond king' Jeff Gundlach warns the US government's borrowing binge could lead to 'fatal' negative interest rates

REUTERS/Brendan McDermidJeff Gundlach
  • Billionaire “bond king” Jeff Gundlach sounded the alarm on the US government’s aggressive borrowing in a Wednesday tweet, warning it could lead to negative interest rates with devastating results.
  • “The pressure to go negative on Fed Funds will build as short term borrowing explodes and dominates,” Gundlach said. “Please, no. Rates < 0 = Fatal.”
  • Gundlach tweeted after the US Treasury announced it would relaunch its 20-year note this month, as it seeks to borrow $US3 trillion to fund its anti-coronavirus stimulus efforts.
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Billionaire “bond king” Jeff Gundlach warned that the US government’s borrowing binge could push interest rates below zero and cause immense economic damage in a tweet on Wednesday.

“These Trillions Treasury is borrowing is heavily in T-Bills,” Gundlach said, referring to Treasury bills, a form of short-term government debt. “Chair Powell has stated in plain English he is opposed to negative interest rates.”

“Yet the pressure to go negative on Fed Funds will build as short term borrowing explodes and dominates,” he continued. “Please, no. Rates < 0 = Fatal.”

In other words, the US Treasury is borrowing aggressively to fund the government’s stimulus efforts in response to the coronavirus pandemic, and that could heap pressure on the Federal Reserve to lower interest rates below zero.

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At the end of April, the Fed left its benchmark overnight lending rates between 0% and 0.25%, meaning further cuts would make negative rates a reality.

Gundlach tweeted after the Treasury announced the reopening of its 20-year bond this month for the first time since 1986, to help it borrow $US3 trillion in the second quarter to fund its stimulus efforts.

It will also auction 3-year and 10-year Treasury notes and sell 30-year bonds, raising $US42 billion, $US32 billion, and $US22 billion, respectively.

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