Invest1 publisher2 min readPublished
Bill Gross limits his bond advice to one-year Treasury bills paying 4.55%
Bill Gross told investors to own no bonds except one-year Treasury bills at 4.55%, citing about $84 trillion of credit and federal debt at 100% of GDP. Holding only bills gives up the gain longer bonds would make in a slowdown, and Gross himself expects the debt to bring one.
The Investor · Invest desk
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What happened
- Gross called the AI sector's debt boom an anomaly by historical standards and said lopsided balance sheets now put growth at risk.
- He told investors to be cautious with stocks at record levels, arguing that higher yields will squeeze profit margins, and to expect more volatile 10-year Treasury prices.
- Hedge funds' share of Treasury holdings has almost doubled since 2023 to 8.5%, larger than the share held by depository institutions or mutual funds.
- Ten-year Treasury yields have risen more than 100 basis points since the Iran war began and recently touched a 24-year high.
- Gross said he is wary of AI hyperscalers priced above 20 times earnings and sees Starlink threatening the mobile businesses of Verizon and AT&T.
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Why it matters
- constraint Investors who hold 10-year Treasuries to cushion stock losses get less protection if leveraged holders are forced to sell bonds in the same downturn.
- cost Borrowers pay for any lasting rise in yields. Each percentage point on $84 trillion of credit adds about $840 billion a year once the debt rolls over.
- decision Gross's one remaining income idea, discounted funds, loses if short rates rise faster than expected. Rolled one-year bills earn more in that case, so his two picks partly offset each other.
A stock of debt, however large, does not set a yield on its own [1]. Or rather, it sets one through whoever has to buy the next issue, and Gross's case is best supported on the buyer side. Central banks no longer reliably buy and hold Treasuries as they diversify their reserves, according to Fortune. The hedge funds gaining share are price-sensitive and quicker to sell [7].
Those funds grew mostly through the basis trade. That is a bet on small price gaps between Treasury bonds and Treasury futures, and Fortune says it has made the market more volatile [8]. A share that has almost doubled since 2023 must have started that year a little above 4.25% [2].
Joe Maher, markets economist at Capital Economics, described in an August note what that ownership does under stress. "In a risk-off environment, safe-haven flows into sovereign bonds may be offset by hedge funds unwinding their leveraged trading positions as funding conditions tighten," he wrote [11]. He added that a stock market sell-off could force hedge funds to dump bond positions to cover their equity losses [12].
A one-year bill at 4.55% earns about $45,500 on each $1 million, fixed for twelve months [5][3]. If inflation stays high and the newer buyers keep asking for more yield, the bill holder collects that and avoids the price losses on longer bonds. Gross is betting on that path [4]. If growth slows, as Gross says the debt will likely make it, long yields can fall, handing the 10-year holder a price gain while the bill holder rolls into a lower rate [4]. If stocks break first, Maher's forced-selling case applies, and a one-year maturity limits how much of that selling shows up as a loss [12].
In my view the call rests more on the change in who owns Treasuries than on the size of the debt [7][9]. The counter-thesis comes from Gross's own forecast. Long yields usually fall when growth slows, and if that happens a one-year bill loses to duration [4]. The thesis is wrong if a 10-year Treasury bought now returns more than 4.55% over the next twelve months [5].
"Preserve and protect is my current investment motto," Gross wrote [15].
What to watch
- Whether hedge funds' 8.5% share of Treasury holdings keeps climbing or falls in a funding squeeze of the kind Maher describes.
- The one-year bill rate a year from now, since it sets what a rolling bills strategy earns once today's 4.55% matures.
- Whether central banks go back to buying and holding Treasuries as they rebalance their reserves.