Bonds are “junk investment”. To say the king of bonds Bill Gross, the founder of Pacific Investment Management Company (PIMCO) who recently said that the bond market is literally junk.
Bill Gross Bonds Account: Junk Investments?
Gross argued that long-term Treasury yields are so low that the funds that buy them belong to the “investment garbage can.” “Cash has been junk for a long time, but there are new contenders now,” said Gross, who co-founded Pacific Investment Management Co. in the 1970s and retired in 2019. long term I’m definitely in that basket, but will the actions follow? Earnings growth better be double-digit and higher, otherwise they could join the garbage truck. “
Gross, 77, has been bearish on bonds for a while. In March, speaking to Bloomberg TV, he said he was starting to bet against Treasuries at around 1.25%. According to Gross, 10-year yields are likely to rise to 2% over the next 12 months, from the current 1.3%, causing investors to suffer a loss of about 3%. Rates were initially sold off later, but have since risen as the coronavirus pandemic erupted which began to raise concerns about economic growth.
Gross suggested that supply and demand dynamics are piling up against Treasuries, saying yields at current levels have “nowhere to go but up”. “How much will private markets then be willing to absorb this future 60% in mid-2022 and beyond?” Gross wrote. “Maybe if inflation returns to the 2% + target by then, a ‘whim’ can be avoided, but how many other fiscal spending programs can we afford without paying them with higher interest rates?”