"New Debt King" Golnak bets on low-probability events, replacing some high-yield U.S. bonds with low-yield instruments

Golden Finance reports that on May 8th, Jeffrey Gundlach, founder of DoubleLine Capital, known as the “New Bond King,” stated that if an economic recession occurs in the future, the United States might choose to swap high-yield U.S. Treasury bonds held by bondholders for lower-interest-rate varieties. This adjustment could cover the entire maturity curve. To proactively prepare for such a scenario, Gundlach has already replaced some of his investment portfolio, including high-yield U.S. Treasuries in his flagship portfolio, with bonds of the same maturity but lower yields.
He is concerned that the U.S. government might unilaterally lower the coupon rates on all outstanding debt to reduce interest expenses during a future recession. He gave an example that the government could, without changing the debt’s maturity, cut the coupon from 4% to 1%, calling it “the ultimate way to kick the can down the road.” If the government were to do this, bond prices would inevitably plummet. However, he admits that the likelihood of the U.S. government doing so is very low. (East New Agency)