By Bill Gross, the renowned retired fund manager and co-founder of Pacific Investment Management, has voiced his concerns regarding the overvaluation of the 10-year Treasury BX:TMUBMUSD10Y. According to Gross, with a yield of 4%, this fixed-income security is not an attractive investment option.
Yields on the 10-year Treasury have witnessed a significant drop of 99 basis points since late October. In light of this, Gross suggests that investors might be better off considering the 10-year Treasury inflation-protected yield, which currently stands at a more favorable rate of 1.80%. However, he clarifies that he does not personally advocate purchasing any bonds at this time.
In addition to his critique of the 10-year Treasury, Gross also shares his views on potential trading strategies. He recommends going long on 2-year bonds BX:TMUBMUSD02Y while simultaneously shorting the 10-year. By adhering to this approach, investors can benefit from the return to a positive 10-year/2-year yield curve while earning carry during the waiting period. Gross even proposes executing these trades through Treasury futures contracts.
Looking back at his previous recommendations, Gross expresses satisfaction with his calls to invest in regional bank stocks six months ago and mortgage REITs in December. The SPDR S&P Regional Banking ETF KRE has witnessed an impressive surge of 49% since hitting its low point on May 4. Similarly, the iShares Mortgage Real Estate ETF REM has experienced a gain of 21% since its late October low. Gross specifically highlighted Annaly Capital Management NLY, +2.62% and AGNC Investment Corp. AGNC, +3.75% as mortgage REITs worth considering for the long term.
In terms of merger arbitrage opportunities, Gross continues to favor Capri Holdings CPRI, -0.39%. In August, Tapestry TPR, +2.04% agreed to acquire Capri for $57 per share. However, as of Monday’s close, Capri is currently priced at $50.49, presenting potential for arbitrage returns.
Bill Gross remains an influential figure in the financial world, offering unique insights and strategic advice in today’s complex investment landscape. His perspectives on fixed-income securities and investment opportunities are highly valued by market participants.
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