In short: "The ones that protect you from inflation are 5 years and in." With CPI expected to start with a 4 through March, the short end is where inflation protection actually works.
TIPS are Treasury bonds whose principal rises with inflation. Gundlach's point is that only the short ones — five years or less — actually protect you, because their price isn't swamped by moves in interest rates. With his model saying consumer inflation will run above 4% through March, short TIPS are the inflation hedge that works.
42:36The difference between the two has been a constant. So, rates went up 500 basis points on nominals. They also went up 500 basis points on TIPS. So you did not have a zero price performance on the TIPS. They went down just as much as the nominals. The ones that protect you from inflation are 5 years and in — 5 years and in. Okay.
In short: "We like the short-term TIPS" — held in DoubleLine's low-risk funds. Breakevens imply the Fed hits 2% immediately and stays there, which he calls very unlikely, so "TIPS are too cheap on the short end."
TIPS are government bonds whose value rises with inflation. By comparing their price with ordinary Treasuries you can read what inflation the market expects — and right now that comparison assumes the Fed gets inflation back to 2% almost immediately. Gundlach thinks that's very unlikely (his favourite gauge says ~7%), so short-dated TIPS are underpriced insurance. DoubleLine holds them in its low-risk funds.
11:21I hear people talk about TIPS a lot versus nominals and we like TIPS. We have TIPS in some of our funds, the low-risk funds. We like the short-term TIPS because we think that the implied inflation by the comparison of nominals to TIPS is implying a way too low inflation rate. They're basically implying that the Fed is going to reach their target immediately of 2% and stay there.
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