Gundlach makes an interesting point
Naked buying of dollar-demoninated debt by foreign buyers is propping up the dollar, according to Jeff Gundlach.
He argues that yield-starved investors in Japan and Europe are buying US bonds because they're one of the few places with positive yields. Normally, the currency risk would be hedged but he notes that it's impossible to hedge the currency risk, because that puts you back into negative rates. So they're taking the positions unhedged.
Gundlach argues that's the only thing that has prevented dollar weakness with the Fed cutting rates. However if/when the US dollar starts to weaken (or in corporate bonds) then there will be a rush to the exits and the dollar will plunge.
To be clear, he's not saying that will happen any time soon, but that it will come eventually. This is a sort-of reversal of the pre-crisis trade where all the Japanese money was going into NZD.Here's what the NZD/JPY trade looked like when it unwound in 2007 and 2008. There were single days with moves in excess of 10%.
