Bill Gross, the veteran bond investor often referred to as the "Bond King," has spoken out about the potential impact of a Donald Trump presidency on the US bond market.
In a recent interview with the Financial Times, Gross stated that a Trump comeback to the White House could spark bigger budget deficits and more significant challenges for the bond market than another term under President Joe Biden.
Gross acknowledged that Biden's tenure has seen a sharp rise in US debt, with deficits increasing to 8.8 percent of GDP last year from 4.1 percent in 2022. But on balance, he said the 45th US president’s policies are more concerning.
"Trump is the more bearish of the candidates simply because his programs advocate continued tax cuts and more expensive things," Gross told the Financial Times, saying that "Trump’s election would be more disruptive."
On the campaign trail, Trump has vowed that he would make his 2017 tax cuts permanent. In contrast, Biden has indicated that he would allow those cuts to expire while ensuring that taxes do not rise for Americans earning less than $400,000 annually.
Amid soaring levels of federal government debt, the Treasury Department has been issuing a substantial volume of bonds. The Federal Reserve's strategy of maintaining higher interest rates and reducing its balance sheet has further pressured bond prices. The Congressional Budget Office has projected a $1.6 trillion deficit for fiscal year 2024.
The escalating US debt and deficit issues have been causing increasing concern on Wall Street, with growing chorus of executives chiming in on the risks including the likes of BlackRock CEO Larry Fink, JPMorgan CEO Jamie Dimon, and Bank of America CEO Brian Moynihan. Recently, Citadel's Ken Griffin panned the country’s approach to debt management, calling it "irresponsible."
“It’s the deficit that is the culprit; a $2 trillion [annual] increase in supply ... is going to put some pressure on the market,” Gross said.
Gross also voiced caution regarding the stock market, advising investors to manage their expectations.
“Over time the markets should mean revert. To me, that means prices going up less than they have,” he noted. “If people are expecting 10 or 15 percent, [they] are going to be working with slimmer budgets.”
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