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Respected investor Bill Gross anticipates a potential surge in Treasury yields soon. During an appearance on CNBC’s “Last Call,” Gross believed the 10-year Treasury yield could reach 5%. He emphasized that the market is presently oversold, influenced by the anticipation of higher Treasury supplies and the Federal Reserve’s commitment to maintaining elevated interest rates for an extended period. On a challenging Tuesday, the stock market experienced a sharp downturn due to the rapidly rising bond yields, causing the S&P 500 to fall by 1.4%. This decline pushed the index to its lowest since June, coinciding with the 10-year Treasury yield hitting its highest point in 16 years. Over the past month, the benchmark yield has surged, touching 4.8%, as the Federal Reserve announced its intention to sustain higher interest rates. Additionally, the 30-year Treasury yield reached 4.9% that Tuesday, marking the highest since 2007.

Gross believes that in the near term, 5% might be the cap for the Treasury yield, contingent upon factors like inflation and economic growth. Fellow billionaire investor Ray Dalio echoed this sentiment, asserting that the surging 10-year rate might test 5% due to prolonged high inflation. Gross, renowned as the “bond king” in the past, pointed out the substantial impact the Federal Reserve’s aggressive rate hikes since March 2022 have had on the yield curve. The central bank has elevated interest rates to levels not seen since early 2001. He also highlighted the concern among investors regarding the adverse effects of a deepening Treasury deficit. The recognition of a Treasury deficit exceeding $2 trillion is affecting the long end of the market. Gross also noted the recent selling of ETFs, which primarily hold long rather than short bonds, as another contributing factor.

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