| NEW YORK
NEW YORK Jan 10 If the yield on the benchmark
10-year Treasury note moves above 2.60 percent, a secular bear
bond market has begun, investor Bill Gross warned on Tuesday.
"Watch the 2.6 percent level. Much more important than Dow
20,000. Much more important than $60-a-barrel oil. Much more
important that the Dollar/Euro parity at 1.00. It is the key to
interest rate levels and perhaps stock price levels in 2017,"
Gross wrote in his latest investment outlook to clients.
The 10-year Treasury note yield was around 2.37 percent late
Gross, who runs the $1.7 billion Janus Global Unconstrained
Bond Fund, said: "Happiness has dominated risk markets since
early November and despair has characterized global bond
The 100 basis point move in the 10-year Treasury yield from
1.40 percent to 2.40 percent has stemmed from the hope for
stronger growth by way of Republican fiscal progress, reduced
regulation and tax reform, Gross noted. He also said Treasury
yields have edged higher on encouraged risk-taking as well as
the potential for higher inflation and a more hawkish Federal
"Are risk markets overpriced and Treasuries over-yielded?
That is a critical question for 2017," Gross wrote.
Gross noted that U.S. President-elect Donald Trump "tweets
and markets listen for now, but ultimately their value is
dependent on a jump step move from the 2 percent real GDP growth
rate of the past 10 years to a 3 percent-plus annual advance."
Gross said 3 percent growth rates historically have
propelled corporate profits to a somewhat higher clip because of
financial and operating leverage dependent on higher growth.
"We shall see whether Republican/Trumpian orthodoxy can
stimulate an economy that in some ways is at full capacity
already," Gross said. "To do so would require a significant
advance in investment spending which up until now has taken a
backseat to corporate stock buybacks and merger/acquisition
related uses of cash flow. I, for one, am skeptical of the 3 and
more confident of the 2."
Gross said demographic negatives associated with an aging
population are now more at risk due to rising interest rates,
technology's displacement of human labor, and the deceleration
and retreat of globalization, posing threats to productivity and
"Trump's policies may grant a temporary acceleration over
the next few years, but a 2 percent longer term standard is
likely in place that will stunt corporate profit growth and slow
down risk asset appreciation," Gross said.
(Reporting By Jennifer Ablan)