Bill Gross Warns About Bond Market

According to a report by Bloomberg, this year saw $89 billion pour into bond funds. Now comes a warning from Bill Gross that the almost three decade rally in bonds has neared its end. Bond Fund investors may be caught off guard by this warning.

According to Brad Durham, co-founder of Emerging Portfolio Fund Research Inc., which tracks investor flows worldwide into mutual funds and exchange traded funds, the first three months of this year, have seen inflows in bond funds five times higher than deposits during the same period. When the financial crisis set in, investors suffered from heavy losses and as a result poured in huge amounts into fixed-income funds, thereby missing the big stock market rally. As Miriam Sjoblom, a bond fund analyst at Chicago-based research firm Morningstar Inc., said in an interview to Bloomberg “The continued inflows make you scratch your head. We’ve seen time and again investors make these kinds of tactical decisions at the wrong time.”

Bill Gross, co-founder of Pacific Investment Management Co. and manager of the world’s biggest bond fund, said yesterday in an interview on Bloomberg Radio that “bonds have seen their best days.” Pacific Investment Management Co. has advised investors to buy the debt of countries such as Germany and Canada that have low deficits and higher- yielding corporate securities. Gross said in the interview that the prospect of a strengthening U.S. economy and rising interest rates makes an “argument to not own as many” bonds. He went on to say that excess borrowing in nations including the U.S., U.K. and Japan will eventually lead to inflation as governments sell record amounts of debt to finance surging deficits.