Logo

Former "Bond King" Bill Gross is bearish on both the stock and bond markets.

TraderKnows
TraderKnows
05-06

In an interview, the former "Bond King" Bill Gross stated that those optimistic about the future trends of the stock and bond markets are mistaken due to the evident overvaluation in both markets.

Last Friday, Bill Gross, the former "Bond King" who recently came out of retirement, expressed in an interview that those optimistic about the future trends of the stock and bond markets are mistaken due to clear overvaluation in both sectors. Gross believes that the inflation rate will be around 3% in the future, and an increasing number of experts agree that the Federal Reserve will eventually raise the inflation target from 2% to 3%.

The former co-founder of PIMCO stated that the fair value of the 10-year U.S. Treasury yield should be around 4.5%, while its current level is about 4.16%. Historically, the yield on 10-year U.S. Treasury bonds has been around 135 basis points higher than the Federal Reserve's policy rate. Even though the inverted yield curve from 2005 to 2010 did not follow historical precedent, considering the historical relationship and current market conditions, the current yield on the 10-year U.S. Treasury bond remains too low.

Gross also believes that the soaring U.S. government fiscal deficit will increase the supply pressure in the bond market and push up the yields of government bonds of all maturities, especially the 10-year Treasury yield.

Bond King 1

Gross delved into the importance of high interest rates as a sign of a healthy economy and the impact of real yields on economic growth and inflation control. He believes that due to the rise in real interest rates and the impact of past fiscal plans, the prospects for consumption, employment, and overall economic growth may slow down, though a recession or hard landing is still far off.

Bond King 2

Discussing the stock market, Gross reiterated the view of Mike Wilson, Chief Investment Officer of Morgan Stanley, stating that the Equity Risk Premium (ERP) - the difference between earnings yield and bond yield - is at a 20-year low, indicating that the current stock market is overpriced.

Bond King 3

Gross also mentioned that the market environment is changing, having sold off regional bank stocks held after a recent rebound. Looking ahead, the former Bond King believes that the assets with the "best value" are energy pipeline partnerships, as they offer higher yields and deferred tax returns.

Risk Warning and Disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

The End

Wiki

Debenture(Bonds)

Bonds or debentures refer to debt securities issued by governments, corporations, banks, or other entities through legal processes. These securities are a promise made to creditors to repay the principal and interest on a specified date in order to raise funds.

Related News

Risk Warning

TraderKnows is a financial media platform, with information displayed coming from public networks or uploaded by users. TraderKnows does not endorse any trading platform or variety. We bear no responsibility for any trading disputes or losses arising from the use of this information. Please be aware that displayed information may be delayed, and users should independently verify it to ensure its accuracy.

Logo

Contact Us

Social Media

footer1