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Bill Gross Warns Investors to Shun Long-Term Bonds Amid Credit Surge
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Bill Gross’s Bond Market Warning
In a recent Financial Times op-ed, Bill Gross—co-founder of PIMCO and long-time “Bond King”—argued that the credit landscape has become unbalanced and urged investors to avoid all bonds except one-year Treasury bills, which were yielding about 4.55 %. He warned that higher yields could compress corporate profit margins and that the benchmark 10-year Treasury could see “higher volatility” than investors have been accustomed to.
Shifting Demand for Treasury Debt
The warning comes as traditional sources of Treasury demand have weakened. Central banks, once reliable buyers, are diversifying reserves, while pension funds are moving toward higher-yielding, less-liquid assets such as private credit. Institutional investors poured roughly $300 billion into private-credit vehicles in 2025, according to Mercer. Hedge funds have stepped into the void, adopting a trading mindset that amplifies price swings rather than dampening them.
Scale of Global Credit and Debt
Federal Reserve data show that government, mortgage and corporate credit now total about $84 trillion, expanding at roughly 5.9 % per year. Net federal debt has reached a peacetime record of about 100 % of GDP. Gross noted that AI-related investment, projected at $1 trillion for 2027, is expected to be financed almost entirely by debt. Hedge funds’ share of total Treasury holdings has nearly doubled since 2023, rising from 4.5 % to 8.5 %, surpassing the combined holdings of depository institutions and mutual funds. Their leveraged basis-trade positions total roughly $830 billion, about twice the early-2020 peak.
Market Reactions and Analyst Views
Capital Economics markets economist Joe Maher cautioned that hedge funds, while providing liquidity, could withdraw that support in a risk-off environment, potentially drying up liquidity in stressed markets. He also warned that hedge-fund unwinding could transmit stress from equity sell-offs to bond markets. Gross expressed skepticism toward AI hyperscalers unless they trade below a price-to-earnings ratio of 20, and he highlighted that dividend-yielding stocks such as Verizon and AT&T face competitive threats from SpaceX’s Starlink.
Implications for Investors
Gross’s advice—“preserve and protect”—suggests a shift toward short-duration, high-quality cash equivalents amid rising debt levels and market volatility. Investors may need to reassess exposure to long-dated bonds and consider the growing influence of hedge-fund trading strategies on Treasury price stability.