Bill Gross lashes out at ‘garbage’ government bonds

Bonds are “trash” and buying US government debt is all but certain to be a losing bet, legendary former bond investor Bill Gross has said.

Gross, the erstwhile “bond king” who built Pimco into a $2tn asset manager before his departure in 2014, fired the latest salvo against the asset class that made him famous in a rambling investment outlook posted on his personal website.

US Treasury yields have slumped in recent months, reflecting a powerful global rally in global debt prices that has blindsided many big investors. On Thursday the 10-year Treasury yield — a benchmark for financial assets around the world — was just 1.29 per cent, far below its late-March peak of 1.75 per cent.

At today’s levels, yields have “nowhere to go but up” given the Federal Reserve is soon expected to start winding down its bond-buying programme, wrote Gross. The 77-year-old, who retired from professional fund management two years ago, said he expected the 10-year Treasury yield to rise to 2 per cent over the next 12 months, resulting in a loss of about 3 per cent for investors as bond prices fall.

“With quantitative easing about to reverse, it’s more than obvious that the $120bn-a-month Federal Reserve deluge will probably end sometime in mid-2022 given inflation at greater than 2 per cent and economic growth prospects remaining optimistic,” he wrote, adding that the central bank has bought 60 per cent of net issuance by the US government over the past year. “How willing, therefore, will private markets be to absorb this future 60 per cent in mid-2022 and beyond?”