A year ago Bill Gross predicted the path of Treasury yields, was he right? | Forexlive

A year ago, the old Bond King made a prediction about the path of Treasury yields. At the time, the 10-year was trading at 4.57% and he thought they were going higher.

“Those that argue for lower rates have to counter the inexorable upward climb in Treasury supply and the likely Sisyphean decline in bond prices,” Gross writes. “Look for 5% plus 10-year yields over the next 12 months — not 4.0%. Those that argue for lower rates have to counter the inexorable upward climb in Treasury supply and the likely Sisyphean decline in bond prices. Total Return is dead. Don’t let them sell you a bond fund.”

You should have bought that bond fund…

In the next five months, 10-year yields fell to 3.6%.

To be fair, they later rebounded to 4.8% but now sit about 40 bps below his call.

Meanwhile. the US fiscal picture continues to deteriorate and indications from Trump’s upcoming tax bill offer few signs that lowering the deficit — which is at 7% of GDP — is a priority. DOGE is proving to be little more than a distraction and any revenue from tariffs will be dwarfed by the cost of new tax cuts.

At some point Gross will be right and those deficits will matter but that wasn’t in the past 12 months.

“It’s the future supply of Treasuries that I want to address. The outstanding balance of Treasuries has been increasing at a 10%+ annual rate for the past 18 months — a result of fiscal post-Covid deficits of 2-3 trillion dollars. At the end of 2023’s fourth quarter there was nearly 30 trillion of outstanding public debt issued by the Federal government, growing at 10% a year,” he wrote 12 months ago.

God forbid consumers are right about 7% inflation in the year ahead.

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