Bill Gross says 10-year Treasuries are 'overvalued' at 4%

Fresh from getting a big call right on yields toward the end of last year, former bond king Bill Gross just signaled he is now steering clear of Treasuries.

Ten-year U.S. debt is “overvalued,” with similar-dated Treasury Inflation-Protected Securities at a 1.80% yield the better choice if one needs to buy bonds. “I don’t,” he wrote in a post on X.

Gross earned the moniker of “bond king” while at Pacific Investment Management Co., the firm he co-founded in the early 1970s. He made millions late last year after a big bet the Federal Reserve would pivot toward interest-rate cuts for 2024 benefited from a sizzling bond rally. That came after he warned in August that bond bulls were misguided, just before a two-month rout that sent yields to 16-year highs. 

Global bonds rebounded on Monday, after they slid in the opening days of 2024 on concerns the late 2023 rally had gone too far, too fast. Benchmark US 10-year yields jumped 17 basis points last week, their biggest such climb since October, as robust labor-market data spurred traders to pare bets on rapid Fed easing.

Taking a bow not only for regional bank recommendation 6 months ago but mtge REITs in December. I still like CPRI for a merger arb - target 57.

On the bond front UST 10 yr at 4% is overvalued while 10 year TIP at 1.80 is the better choice. If you need to buy bonds. I don’t.

— Bill Gross (@real_bill_gross) January 8, 2024

Treasury 10-year yields declined two basis points on Tuesday to 4.02% after oil prices tumbled on Monday and a consumer survey found that inflation expectations declined. Gross said in a later post that shorter-end notes would make more sense for those interested in the market.

“Stick with the return to a positive 10 year/2 year yield curve,” he said in a follow-up post.

Stick with the return to a positive 10 year/2 year yield curve. Earns carry while you wait.

— Bill Gross (@real_bill_gross) January 8, 2024

Yields on 10-year Treasuries are about 35 basis points below those on two-year notes. The yield curve has been inverted since July 2022, which some see as signaling an impending recession. Investors have been betting the curve will disinvert for much of the past year.

Gross has recently been focusing on merger-arbitrage plays as a way to play an equities market that he also sees as overvalued.