Jitalia17
Famed bond investor Bill Gross says the “Total Return” investment strategy he helped create in the late-80s is “dead.”
The retired co-founder of fixed-income specialist Pacific Investment Management Co. in 1987 built upon his idea to combine interest income with capital gains in bond prices to generate “total return” above current yields.
Gross in an outlook piece released Thursday noted Treasury yields -- which move inversely to prices -- were running upwards of ~15% when the strategy was launched, higher than current levels, and said he disagrees with investment managers “touting bullish forecasts" of 4.6% for the 10-year Treasury (US10Y) yield.
Gross projected the 10-year yield will rise above 5% over the next 12 months, with prices declining as the government pushes more debt into the market. The U.S. economy to keep expanding "requires fiscal deficits and net increases in Treasury debt of $1T to $2T or more annually," he said.
“Those that argue for lower rates have to counter the inexorable upward climb in Treasury supply and the likely Sisyphean decline in bond prices. Total Return is dead. Don’t let them sell you a bond fund,” Gross said.
He said for background, Vanguard’s Total Bond Market Index Fund (BND) has produced a negative 0.1% total return over the last five years, including income plus percentage price change.
"Now, however, bond bulls cite 2-3% forward inflation and a Fed cut, two, or three to suggest 10-year yields move to 4% which would produce a 7%+ total return for the balance of 2024. Not gonna happen in my view," he said.