Legendary bond and fixed income pioneer William H. (Bill) Gross today released a new Investment Outlook, "They Just Wanna Sell You a Bond Fund." In his latest Outlook, Mr. Gross declares that the "total return" bond fund concept he helped originate and popularize almost four decades ago, "is dead" and that he disagrees with "investment managers touting bullish forecasts for 4.60% 10-year Treasuries."
By way of background, Mr. Gross writes: "This concept of 'total return' was a phrase Pimco originated in the depths of the bond bear market in the early 1980's. Such commonsensical brilliance emanated from a 15%, 30-year Treasury yield and the observation that based on rock bottom durations of 6-7 years they could go to 17.5% before an investor would be in the red. Not slam dunk at the time but close. Thus, managers were able to reverse the past reality of 'certificates of confiscation' for which they were known at the time and produce a 'total return' that was positive. Worked for a long time, until the summer of 2020 when 10-year yields bottomed at 53 basis points and these 'investments' came to resemble Sisyphus headed downhill — 2 steps down, one step back up in price. Because yields were near 0%, not 15%, and durations were now in the 20+ year category, total return was dead."
Bottom line, writes Mr. Gross, "Total Return is dead. Don't let them sell you a bond fund."
Full text of Bill Gross's May 2, 2024, Investment Outlook can be found at his website.
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