Bill Gross, a renowned investor and “bond king,” has warned about the overvaluation of 10-year U.S. Treasury debt and suggested a potential alternative.
The Warning: Gross, the co-founder of Pacific Investment Management Co., recently shared his views on the state of the U.S. bond market, as reported by Bloomberg. He believes that the 10-year U.S. Treasury is currently overvalued and that there is a better alternative in the form of Treasury Inflation-Protected Securities (TIPS) with a yield of 1.80%.
In a post on X on Tuesday, he expressed his opinion, arguing that TIPS is a more suitable option for investing in bonds. Gross recently gained from a considerable bet on a shift in the Federal Reserve’s interest-rate policy, suggesting that shorter-end notes might be a better option for potential investors.
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The bond market experienced a rebound on Monday, following a decline at the start of 2024. This was largely driven by concerns that the late 2023 rally had progressed too rapidly. A robust labor-market data halted the rally, which led to a significant increase in benchmark US 10-year yields.
The Impact: Gross, also known as the “bond king,” has a history of making successful calls in the bond market. He made significant profits from a November rally in the U.S. Treasury market despite the market being at or near 16-year highs.
Earlier in 2023, Gross also expressed his belief in the long-term value of regional banks, describing the stocks as a “falling knife” that had not yet hit the ground. His continued success in the market and his recent warning about the 10-year Treasury’s overvaluation may serve as a significant indicator for potential investors.
