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Famed bond investor Bill Gross advises betting on a flattening yield curve.
In a recent blog post, Gross, who used to managed the world’s largest bond fund at PIMCO, noted that the 10-year Treasury yield (US10Y) (TBT) (TLT) is right where it was 20 years ago at 4.2%.
“Too much supply,” he added. “And real rates at 2% imply a 2.3% breakeven rate against inflation with 10-year nominals at 4.3%.”
“If inflation gets to 2.3% by the end of the year (not likely in my book) what can the 4.3% yield do?” Gross said. “I don’t understand any of the new bond gurus on CNBC when they tout bonds over the last 12 months.”
“Bet on a flattening of the negative yield curve. Sooner or later it must go positive if the economy is to stay positive. I am long 2’s (US2Y) (SHY) and short 5’s (US5Y) (IEI) and 10’s.”
Gross previous recommended MLP pipelines and regional banks.
“MLPs have never been covered by the press and are unowned due to legal constraints by most mutual funds,” he said. “That and higher oil prices have led to 28% average gains along with 9-10% tax-deferred yields since 2023. Better total return than the S&P 500 (SP500) (SPY) (IVV) (VOO) over the same time period.”
“So where from here? The MLPs are far above RSI and Bollinger Band averages. Be cautious. I do like Western Midstream (WES) though. The market doesn’t seem to know about its recent 40% hike in its dividend and its current yield of 10.1% — tax deferred.”
“Banks? I tweeted (“X’ed”) recently not to try and catch a falling knife, but if the Fed lowers short rates later this year, they could catch a bid,” Gross said. “Some like Truist (TFC) are relatively clean as far as commercial real estate and trade at .89% of book. Be exuberant in a month or so.”
