(Bloomberg) — Bill Gross, the former king of bonds, said stock and bond bulls are wrong, as both markets are “overvalued.”
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The former chief investment officer of Pacific Investment Management Co. said in an interview on Bloomberg Television that the fair value of the 10-year Treasury yield is about 4.5%, compared to the current level of about 4.16%.
Gross, who retired from asset management in 2019, said inflation could hover around 3%. He pointed out that 10-year interest rates have historically been about 135 basis points higher than the Federal Reserve’s policy rate.
So even if the Fed cuts rates to around 3%, the current 10-year rate will remain too low given the historical relationship. In addition, the skyrocketing government deficit will increase supply pressures in the bond market, he said, reiterating his position as outlined in his recent investment outlook.
“All the bulls on Treasuries,” Gross said, “I’d like to think their arguments are a little misguided.”
On the stock market, Gross said the risk premium on stocks — as measured by the difference between earnings yields and bond yields — is historically low, suggesting that stocks are overpriced.
Gross reiterated that he has sold his positions in regional banks after the recent rally. Right now, it’s operating with “best value” energy pipeline partnerships, which offer attractive yields and tax benefits, he said.
(Updates to include additional details throughout.)
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