Bill Gross, the co‑founder of PIMCO who earned the nickname “Bond King” for reshaping bond investing, issued a stark warning in a Financial Times op‑ed published on Wednesday. He argued that the current credit environment is overly skewed, making longer‑dated debt a risky proposition for investors.
Rising Debt and Market Imbalance
Gross highlighted that the combined amount of government, mortgage and corporate credit now sits at roughly $84 trillion. He warned that an excess of debt can generate excessive risk, while an overabundance of equity may suppress earnings‑per‑share growth during periods of weak productivity. According to Gross, balance sheets have become too lopsided, threatening future growth.
The author noted that the surge in debt within the artificial‑intelligence sector is an outlier compared with historical patterns, and that federal debt has already reached a peacetime peak of 100 percent of gross domestic product. While this massive debt load is currently underpinning growth, Gross said it has also stoked higher inflation and is likely to dampen growth prospects later on.
Changing Dynamics in the Treasury Market
Gross’s caution comes amid structural shifts in the Treasury market. Central banks worldwide are pulling back from the practice of buying and holding large quantities of Treasury securities, opting instead to diversify their reserves. At the same time, price‑sensitive hedge funds have become more prominent players, trading more quickly and influencing price movements.
One strategy, known as the “basis trade,” exploits small price gaps between Treasury bonds and Treasury futures. Its popularity has amplified market volatility, and hedge funds now own about 8.5 percent of total Treasury holdings – a share that has nearly doubled since 2023 and now exceeds the combined holdings of depository institutions and mutual funds.
Ten‑year Treasury yields have risen by more than 100 basis points since the onset of the Iran conflict, reaching the highest level seen in 24 years. Joe Maher, a markets economist at Capital Economics, warned that while hedge funds provide liquidity, they can also erode the perception of Treasuries as a safe‑haven. In a risk‑off environment, hedge funds may unwind leveraged positions as funding tightens, potentially draining liquidity when markets are stressed. Maher also cautioned that stress in equity markets could force hedge funds to sell bond positions to cover losses, transmitting volatility across asset classes.
Gross’s Investment Outlook
Against this backdrop, Gross advised investors to avoid bonds except for one‑year Treasury bills, which at the time of writing offered a yield of 4.55 percent. He also suggested caution with equities that are trading at record highs, noting that higher yields could compress profit margins and usher in a new era of stock‑market behavior marked by greater price swings.
Specific sectors also drew his scrutiny. He expressed skepticism toward AI “hyperscalers” unless they trade at price‑to‑earnings ratios below 20. While dividend‑yielding telecom stocks such as Verizon and AT&T provide attractive yields, Gross warned that their mobile‑phone businesses face competitive pressure from SpaceX’s Starlink satellite service.
Gross identified a limited niche for income‑focused funds that are priced below their net asset values, but he cautioned that these could suffer if short‑term rates climb faster than expected. He summed up his current philosophy with the phrase, “Preserve and protect.”
Gross’s remarks underscore a broader re‑evaluation of fixed‑income strategies as debt levels soar and market participants shift their behavior. Investors weighing exposure to bonds, equities and income‑oriented funds will need to consider the heightened volatility and structural changes highlighted by the former bond‑market titan.
Mitchell Landsberg is a Senior Technology Correspondent at News Raise. He covers consumer electronics, artificial intelligence, software developments, and digital privacy trends.
