High-yield bond default rates may double as companies face further economic downturn, says DoubleLine CEO Jeffrey Gundlach. This according to a recent article in Bloomberg.

During a webcast earlier this month, Gundlach expressed “broad skepticism about the market’s connection to economic realities,” the article reports, adding, “He criticized the Fed’s emergency actions as buoying asset prices and spurring unsustainable corporate borrowing binges.” Gundlach explained that the investment grade corporate debt market has tilted toward lower quality debt (BBB-), adding that if only half of that were to be downgraded it could double defaults in the high-yield market.

Gundlach argued that risk assets including equities and high-yield credit markets are responding to the Fed’s support and the government’s stimulus “disproportionately as the Covid-19 pandemic remains a threat to the recovery.” He added, “It’s foolhardy to believe that one can have this kind of a shock to an economy and it just gets healed through a one-shot deal.”