Homepage / Investment / Gundlach: Tax plan could have some' unintended consequences,' hurt junk bond market
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Investment

Gundlach: Tax plan could have some' unintended consequences,' hurt junk bond market

Jeffrey Gundlach, the renowned bond investor, believes the tax cut is not going to be positive for all companies over the long run and could hurt values of junk credit.

“There’s probably going to be some unintended consequences from all this tinkering around with the tax code, ” Gundlach told CNBC’s Scott Wapner on the “Halftime Report.” “I think it will probably harm some companies, some sectors.”

Gundlach, the CEO of DoubleLine, which manages more than $100 billion from Los Angeles, also said the new tax plan could “lead to a narrative about defaults in the junk-bond market.”

GOP lawmakers and the Trump administration have been pushing hard for a revamp of the U.S. tax code this year. Their plan would lower the corporate tax rate to 21 percent from 35 percent starting in 2018.

Equities have risen sharply this year as investors bet on a cut to the corporate tax rate. The Dow Jones industrial average and S&P 500 are up 24.6 percent and 19.2 percent for the year, respectively. On Wednesday, they reached record highs.

But the tax plan would also raise taxes in states like California, New York and New Jersey, which are already high tax-paying states. Gundlach said it would likely make people in those states less willing to buy stocks and risk assets.

“I do believe the narrative will develop that there are negative parts, unintended consequences to this tax package,” he said.

Gundlach also found it interesting that junk bonds haven’t followed equities higher this year. The SPDR Bloomberg Barclays High Yield exchange-traded fund (JNK) is up just 0.9 percent in 2017.

Source: Investment Cnbc
Gundlach: Tax plan could have some' unintended consequences,' hurt junk bond market

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