Bill Gross, renowned as the “bond king,” renowned for his accurate yield predictions, is sounding a cautious note on Treasuries. In a recent post on X, Gross stated that the ten-year US debt is currently “overvalued,” suggesting that those considering bonds should turn their attention to Treasury Inflation-Protected Securities (TIPS) with a 1.80% yield.
Gross, who earned the “bond king” title during his tenure at Pacific Investment Management Co., co-founded the firm in the early 1970s. His successful prediction in late 2023, anticipating a Federal Reserve pivot toward interest-rate cuts for 2024, resulted in substantial gains amid a robust bond rally. This success followed his August warning that bond bulls were misguided, presaging a two-month rout and sending yields to 16-year highs.
Despite global bonds rebounding recently after early 2024 declines, concerns lingered about the late 2023 rally’s rapid pace. Last week, benchmark US 10-year yields saw a significant 17 basis points climb, the most substantial increase since October, prompted by strong labor-market data that led traders to scale back bets on swift Fed easing.
On Tuesday, Treasury 10-year yields retreated by two basis points to 4.02%, influenced by a drop in oil prices on Monday and a consumer survey indicating a decline in inflation expectations. Gross, in a subsequent post, suggested that shorter-end notes might be a more sensible option for those interested in the market.
Encouraging investors to “stick with the return to a positive 10-year/2-year yield curve,” Gross emphasized that yields on 10-year Treasuries currently lag around 35 basis points behind those on two-year notes. The yield curve, inverted since July 2022, is seen by some as a potential indicator of an impending recession, with investors betting on its disinversion for a significant part of the past year.
In his recent focus, Gross has turned attention to merger-arbitrage plays as a strategic approach to navigating an equities market he perceives as overvalued.
