Bond king Jeff Gundlach breaks down why a booming $8 trillion market is poised to face a reckoning when the next recession hits

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'The corporate-bond market will really have problems when you see negative GDP,' Gundlach said.

The junk-bond market will run into trouble when the next economic downturn hits, according to Jeffrey Gundlach, the CEO of DoubleLine Capital.

Post-financial crisis, the market was juiced by zero interest rates and historically low yields on safer bonds like Treasuries. And according the Federal Reserve's semiannual report released Monday,in the US jumped by one-fifth to $1.1 trillion in 2018, crossing its pre-crisis peak. While non-investment-grade bonds are perpetually a cause for concern, Gundlach flagged the cohort of BBB-rated companies that are a hair away from being downgraded. Last year, the weakest of these investment-grade bonds constituted apublished by Morgan Stanley last August that said 45% of the investment-grade universe would be rated as junk if leverage was the only criteria being used. This share was 30% in early 2017 and just 8% in 2011.

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