Original title: big short! "Old Bond King" Gross: bonds, like cash, belong to "investment garbage".
Source: FX168
The "old debt king" criticized the recent low US bond yields, describing bonds as "investment junk".
Grubby Gross, a famous investor once known as the "king of bonds", used the word "junk" when talking about the bond market.
In an investment outlook posted on the website, Gross pointed out that long-term Treasury yields are so low that funds that buy them should be thrown into the "investment trash can".
Over the next 12 months, he wrote, the yield on the 10-year bond is likely to climb to 2% from the current rate of about 1.3%, equivalent to a loss of about 3% for investors. If corporate earnings growth is lower than expected, stocks may also be classified as "junk".
"Cash has been junk for a long time, but now there are new competitors," says Mr Gross. "medium-and long-term bond funds will definitely be thrown into the dustbin, but will the stock market follow suit? Profit growth had better be more than double digits, otherwise they may join the ranks of garbage trucks. "
Gross co-founded Pacific Investment Management in the 1970s and retired in 2019.
Gross, 77, has been bearish on bonds for some time. In march, he told Bloomberg that he started shorting Treasuries around 1.25%. Interest rates were initially sold off after the outbreak, but began to pick up as the increase in the coronavirus raised concerns about economic growth.
In a report on Monday, Mr Gross hinted that the accumulation of supply and demand was bad for Treasuries and said current yields had "no choice but to rise".
'The Fed may soon start to scale back its asset purchases at a time when demand from foreign central banks and investors has weakened,'he wrote. The Fed absorbed about 60% of net Treasury issuance through its quantitative easing program. At the same time, future fiscal deficits of at least $1.5 trillion suggest that the supply of US Treasuries will remain high.
"so will the private market be willing to absorb 60 per cent of the future in or after 2022?" "maybe by then, if inflation returns to the 2% target, we can avoid panic, but how many fiscal spending items can we afford if we don't pay higher interest rates?" Gross wrote.