PIMCO co-founder Bill Gross has issued a stark warning to global investors. He advises them to avoid holding long-term fixed-income assets as total government, mortgage, and corporate credit climbs to an estimated $84 trillion. In an op-ed originally published in the Financial Times, the veteran investor known globally as the “Bond King” cautioned that unbalanced balance sheets and historic debt levels threaten future economic stability and market performance.
Gross stated that net federal debt has reached approximately 100% of the gross domestic product (GDP), setting a notable record for a peacetime environment. While credit has been expanding at an annual rate of 5.9%-fueling short-term economic activity and supporting asset prices-Gross warned that any deceleration down to 4% could trigger severe contractions across financial markets.
The Case Against Long-Term Bonds
Given the current economic landscape marked by swelling deficits and persistent inflationary pressures, Gross offered clear and direct advice to market participants regarding fixed-income strategies.
“In such an environment, my view is: don’t own bonds, with the exception of one-year Treasury bills, which are now at 4.55%,” Gross wrote.
His skepticism toward longer-term debt stems from structural transformations within the bond market. Central banks around the world have shifted away from reliably buying and holding Treasury debt to diversify their reserves. Simultaneously, price-sensitive hedge funds have grown into dominant market players, utilizing complex strategies like the basis trade to exploit minor price differences between Treasury bonds and futures. According to market data, hedge funds’ share of total Treasury holdings has nearly doubled since 2023 to 8.5%, outpacing depository institutions and mutual funds and introducing unprecedented volatility.
Caution Urged for Equities and AI Infrastructure
Beyond the fixed-income sector, Gross advised investors to exercise extreme caution regarding equities trading at or near record levels. He noted that structurally higher bond yields over time will inevitably contract corporate profit margins, signaling the potential end of familiar stock market trends.
Gross also raised concerns regarding the artificial intelligence infrastructure boom. He pointed out that hyperscalers are borrowing hundreds of billions of dollars to finance massive data center expansions. With AI-related investments forecast to reach $1 trillion by 2027, Gross warned that much of this spending increasingly depends on debt financing rather than positive cash flow.
- Artificial Intelligence Debt: Gross remains suspicious of AI hyperscalers unless they maintain price-to-earnings ratios below 20.
- Telecom Sectors: While traditional telecom stocks like Verizon and AT&T offer decent yields for conservative portfolios, their core mobile phone operations face emerging threats from competitors like SpaceX’s Starlink Mobile.
- Alternative Opportunities: Gross noted potential value in select income funds trading at discounts to their net asset values, though he cautioned they remain vulnerable if short-term interest rates spike unexpectedly.
A Motto of Preservation and Protection
Reflecting on the broader macroeconomic challenges-including an aging global demographic that will drive up future Social Security, Medicare, and Medicaid obligations-Gross emphasized that short-term growth driven by excessive leverage carries long-term consequences.
Summarizing his current outlook for private investors and wealth managers navigating this era of heightened market volatility, Gross reiterated a straightforward financial philosophy: “Preserve and protect is my current investment motto.”
