Legendary bond investor Bill Gross said he sold Treasuries and expects US inflation to rise to the 3-4% band in the coming months.
Gross explained that alongside mounting price pressures amid “substantial” financial incentive, including a $ 1.9 trillion Covid-19 aid bill and a potential infrastructure package, household incomes will also increase. , which will contribute to inflation.
“There is significant backlog demand that can be released if consumers want to go in this direction, and I think they will to some extent,” Gross said.
Treasury bond yields have risen since January, partly driven by expectations that tax incentives and vaccines will accelerate the recovery and lead to higher inflation. Reflecting inflation expectations for the next decade, the 10-year equilibrium inflation rate fell slightly below 2.31% on Tuesday, the highest since January 2014.
The market is also changing expectations about when the Fed will begin tightening policy, announcing its next policy decision on Wednesday. Several Wall Street strategists raised their performance estimates to 10 years in response.
Fed Chairman Powell promises to monitor inflation spikes until the central bank has established the level at which inflation will stabilize and employment targets will be met. However, even if the Powell and Fed dot chart “denies” the market rate forecast for March 2023, “it will stop it in terms of its current 3-12 month policy at 3-4% inflation. %, “Gross said.
Gross said he took a short position in Treasuries a few weeks ago when selling began. The sales in question increased the 10-year yield to 1.64%, the highest level since February 2020. Managing the world’s largest bond fund at Pacific Investment Management, the investor continues to bet against 10-year futures and bonds. long.
Given the impact of the 10-year interest rate on the housing market, Gross believes the Fed will implement its “twist” policy in the near future by targeting its asset purchases on long-term Treasuries.
Gross adds that since yields have declined from the highs reached at the time of the sell, such a move may have already occurred in the last two weeks.