Bill Gross, Portfolio Manager, Janus Capital Group
Lucy Nicholson | Reuters
Widely followed investor Bill Gross believes Treasury yields have the potential to rise even further in the near term.
“I think we’ll go to 5[%]” Gross said on CNBC’s “Last Call” on Tuesday, referring to the Yield on 10-year government bonds. “The market is certainly oversold right now with hopes for Treasury deliveries and longer term in terms of Fed deliveries.”
The stock market suffered a sharp selloff on Tuesday as rising bond yields rocked Wall Street. The S&P 500 fell 1.4% intraday, hitting its lowest level since June, when the 10-year Treasury yield hit its highest level in 16 years.
The benchmark yield rose to 4.8% last month as the Federal Reserve vowed to keep interest rates higher for longer. The 30-year Treasury yield hit 4.9% on Tuesday, also its highest level since 2007.
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Yield on 10-year government bonds
“I think in the short term the cap is maybe 5%. Of course, that depends on inflation and economic growth,” said the former chief investment officer and co-founder of Pimco.
Billionaire investor Ray Dalio also said Tuesday that the rising 10-year interest rate could test the 5% level as he expects higher inflation for longer.
Gross, once known as the bond king, believes the Fed’s aggressive rate hikes since March 2022 have had a significant impact on the yield curve. The central bank has raised interest rates to their highest level since early 2001.
Gross said investors are now grappling with the negative impact of a worsening federal deficit.
“What we’re seeing is a recognition of the federal deficit of over $2 trillion, and that’s impacting the long end, as well as, I think, in the last few days the selling of ETFs, which basically own long-term bonds .” as opposed to short bonds,” Gross said.