Gundlach: It yields 4.1%. If you combine PPT and BKLN, you’ll have a 5%-plus yield and little interest-rate risk. Your total return for the year could be as high as 7% or 7.5%. Next, like Felix, I would short German Bunds. They are yielding 0.27%, and Germany’s inflation rate is 1.7%. Historically, it is very rare to have a Bund yield below the inflation rate. The current gap is a record. The Bund yield is unsustainably low. Schafer: What is the best way for an individual to short German Bunds? Gundlach: Short the futures. I agree with Felix that the Italian bond market is deeply troubled. Shorting Italian bonds could potentially produce a massive home run; they are yielding 47 basis points less than 10-year U.S. Treasuries, which represents a full buy-in on the idea that the euro zone will last forever. If the euro zone breaks up, a possibility we have discussed, and Italy has to go it alone, sovereign bonds could yield 1.9%. The current yield is insanely low. But shorting German Bunds appeals more. They are more vulnerable at this point than U.S. bonds.
Source: 2017 Roundtable, Part 2: Manual for a Mixed-Up Market – Barron’s