Bond yields have “nowhere to go but up,” and the intermediate- to long-term bond funds that invest in them are “new contenders for the investment garbage can,” the former PIMCO head and founder Bill Gross wrote on his blog this week.
Gross calculates that 10-year Treasury yields rising to 2% in the next year from their current 1.3% would hand investors negative total returns of 2.5% to 3%.
Ballooning public debt burdens worldwide, and the probability that “the $120 billion-a-month Federal Reserve deluge will probably end sometime in mid-2022” mean that governments will find it hard to sell their bonds at the current low yields, he explains.
“Cash has been trash for a long time but there are now new contenders for the investment garbage can. Intermediate to long-term bond funds are in that trash receptacle for sure,” Gross writes.
The fund manager also wonders whether stocks will follow. “Earnings growth had better be double-digit-plus or else they could join the garbage truck,” he adds.
And that is not even counting the Afghanistan debacle or “the incessant push ofglobal warming that few investors seem to care about,” he warns.
So what’s an investor to do? Little help there: “Only a Honus Wagner baseball card and of course Salvatore Garau’s NFT may be safe,” writes the man once known as “bond king,” in a reference to the early 20th century baseball player and the Italian artist who recently sold an “Invisible Sculpture” for $18,000.
But behind the lively tone of his missive, Gross is only stating what market investors are considering obvious: the certainty that the world central banks’ massive quantitative easing programs are coming to an end. As he notes himself, the main question isn’t so much whether but how quickly this will happen.
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