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Bonds are “trash” and buying US government debt is almost certain to be a losing bet, legendary former bond investor Bill Gross said.
Gross, the former ‘king of bonds’ who made Pimco a $ 2 billion asset manager before he left in 2014, fired the latest volley at the asset class that made him famous in a disjointed investment prospect published on his personal website.
US Treasury yields have plummeted in recent months, reflecting a powerful global rally in global debt prices that has blinded many large investors. On Thursday, the 10-year Treasury yield – a benchmark for financial assets around the world – was just 1.29%, well below its end-March peak of 1.75%.
At today’s levels, yields have “nowhere to go but up” as the Federal Reserve is expected to start scaling back its bond buying program soon, wrote Gross. The 77-year-old, who retired from professional fund management two years ago, said he expected the 10-year Treasury yield to hit 2% in the next 12 months, resulting in a loss of around 3% for investors.
“With quantitative easing about to be reversed, it is more than obvious that the Federal Reserve’s $ 120 billion-per-month deluge will likely end in mid-2022, given inflation above. 2% and the outlook for economic growth remains optimistic, ”he wrote, adding that the central bank has bought 60% of net US government issuance in the past year. “To what extent will private markets be prepared to absorb this future 60% in mid-2022 and beyond?”
He added: “Money has been a dumpster for a long time, but now there are new contenders for the investment bin. Intermediate to long bond funds are certainly in this trash. “
After founding Pimco in 1971, Gross revolutionized bond investing by making the company the largest fixed income asset manager in the world. He later became known for his varied and often eccentric commentary on the markets. His latest missive is no exception, touching on non-fungible tokens, gymnast Simone Biles and a 2018 “dust-up” with a neighbor in which he blew up the melody of the theme of Gilligan Island over the fence of his California mansion by the beach.
This week’s note isn’t the first time Gross has tried to call the time in the bond bull market for four decades. In March, he said he was selling Treasuries short, expecting yields to climb to 3%. He also revealed he was betting government bonds in early 2018 while working for Janus Henderson, the company he joined after abruptly leaving Pimco in 2014.
Yet Gross is far from the only investor to be caught off guard by the treasure rally this summer. Many heavy bond investors stuck to their bearish bets even as yields plunged in July, a move that resulted in heavy losses for some top tier. hedge funds that had accumulated in the so-called reflation trade.