Gross Says Bond Bear Market Has Arrived After a 35-Year Run
Gross Says #TimesUp for Men and Bond Run as Flat Returns Loom
(Bloomberg) -- Oprah Winfrey’s Golden Globe Awards pronouncement that “Time is up” for men who oppress women also goes for the bond market that’s been buoyed by repressed interest rates, according to Bill Gross.
“Bonds, like men, are in a bear market,” Gross, manager of the $2.2 billion Janus Henderson Global Unconstrained Bond Fund, wrote in an investment outlook released Thursday. “Oprah shouted, ‘Their time has come.’ The bear bond market’s time has come as well. Many would say, including yours truly -- ‘It’s about time.’ ”
The flippant comparison is among a series of surprising metaphors Gross has employed in his career. In his colorful monthly investment outlook pieces he has referenced his cat, “Mad Men” and offered dating advice. Last year, he called Federal Reserve Chair Janet Yellen a “modern day Goldilocks” and referred to quantitative easing as “financial methadone.” In 2007, he famously said that Moody’s Investors Service and Standard & Poor’s were duped by the make-up and “six-inch hooker heels” of risky securities that were given investment-grade ratings.
The end of a 35-year bond bull market may have been July 2016, when yields on 10-year Treasury bonds hit an all-time low in a “double-bottomed” pattern, although it wasn’t apparent at the time, according to Gross. The bear market was confirmed this week as rates on the 10-year passed 2.5 percent, he tweeted on Tuesday.
Other bond managers say yields have to climb higher to enter bear territory. Guggenheim Partners’ Scott Minerd said in email that the bull market remains intact unless the 3 percent level is broken, adding that even then the lows could be retraced again before “a generational bear market” starts.
According to Gross, yields are likely to climb to at least 2.7 percent by year-end. The driving forces include global economic growth, the U.S. Federal Reserve raising its benchmark rate and other central banks reducing quantitative easing policies of buying sovereign debt to repress rates.
“The diminution of QE check writing and a 5 percent nominal GDP should be enough to produce higher 10-year Treasury yields, near 0 percent total returns, and the legitimate characterization of the beginning of a mild bear market,” Gross wrote.
Yields on sovereign debt in the U.K., Japan and Germany are likely to join Treasuries in heading higher, presenting an opportunity for investors betting prices will fall, Gross said Thursday on Bloomberg Television.
“What I see as an opportunity is not necessarily investing in Treasuries or global bonds, but in some cases selling them,” he said in the interview.
Gross’s Janus unconstrained fund returned 2.4 percent in 2017, better than 26 percent of its peers, according to data compiled by Bloomberg. It returned an average of 2.4 percent annually in the three years through Jan. 10, better than 42 percent of competitors.
--With assistance from Scarlet Fu and Julie Hyman
To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net.
To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Josh Friedman, Dan Reichl
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