"Preserve and Protect": The "Bond King" Calls for Dumping Nearly All Bonds

Pimco co-founder Bill Gross, in a column for the Financial Times, advised investors to avoid bonds—with the exception of short-term U.S. Treasury bills—and to exercise caution with regard to stocks trading at record highs. According to the “bond king, ” rising debt poses a threat of slowing economic growth and persistently high inflation, so capital preservation becomes the top priority for investors.

— Short-term bonds. “Under these conditions, my position is this: don’t hold bonds, with the exception of one-year Treasury bills, which are currently yielding 4.55%,” Gross wrote in a column on September 30. For 10-year Treasuries, which serve as a benchmark for the market, the investor expects price volatility to increase.

— Stocks of cloud service providers. Gross advises keeping an eye on them only if the company’s price-to-earnings ratio is below 20. “I’m wary of hyperscalers, except for those with a P/E ratio below 20,” Gross admitted.

— Telecommunications operators Verizon and AT&T. Gross does not hold shares in these companies, but believes that the dividend yields on these stocks may be of interest to some conservative investors in the U.S. market. At the same time, he says, both operators’ mobile business is currently under threat from SpaceX’s Starlink Mobile.

— Funds focused on generating regular income in the form of dividends and interest. “Opportunities may also be found in income funds if the market values them at a discount to their net asset value,” Gross writes. As an example, he cites the Nuveen Preferred & Income Opportunities Fund, which trades at about 8% below net asset value and yields 11% annually, although Gross himself does not hold these securities. “However, like others in this sector, the fund will suffer if short-term interest rates rise more than expected,” he warned.

Gross believes that an expansion of credit is necessary for economic growth. He therefore suggests monitoring total U.S. debt, which includes government, mortgage, and corporate debt: according to Fed data he cites, it amounts to about $84 trillion.

In the first quarter of 2026, this debt was growing at an annual rate of 5.9%. Gross considers this rate acceptable given nominal U.S. economic growth of approximately 8%. In his view, this is sufficient to maintain or raise asset prices, as the euphoria surrounding AI is leading investors to expect economic growth rates higher than historical averages. “This is precisely what explains current stock prices,” he writes.

However, there is a limit to propping up the economy through borrowing: the accumulation of debt that stimulates growth today could lead to a slowdown in the future, Gross warns. He sees this risk in AI financing. The hundreds of billions of dollars that hyperscalers are borrowing to expand their data centers could fuel future growth. “But if not—‘Houston, we have a problem,’” the investor warns. At the same time, the $1 trillion in AI investments projected for 2027 will most likely have to be financed entirely through debt, since positive cash flow has dried up, he believes.

Gross sees equally serious risks in public finances. “Even the most optimistic economist needs to start acknowledging that the U.S. is reaching a peak level of debt for ‘peacetime,’” he writes. In his view, further borrowing not only worsens the outlook for economic growth but also fuels higher inflation. The investor does not expect inflation to decline significantly without tighter fiscal policy and restrictions on global borrowing.

That is why Gross now prioritizes capital preservation: “Preserve and protect—that is my current investment motto.”

______________________

In the “Guru Portfolios” section on Oninvest, you can track the composition and changes in the portfolios of the world’s largest investors and funds. The service allows you to analyze the largest holdings, new ideas, and changes in asset allocations based on 13F filings, as well as compare portfolio performance over time.

This article was AI-translated and verified by a human editor