Veteran bond investor says Trump return to White House would worsen budget deficits and hit bond market harder than Biden

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27th May 2024 – (New York) Bill Gross, a veteran bond investor, warns that if Donald Trump were to return to the White House, it would exacerbate budget deficits and have a more detrimental impact on the bond market compared to another Joe Biden term. In an interview with the Financial Times, Gross acknowledges that Biden has also overseen a surge in U.S. debt, with deficits reaching 8.8% of GDP last year, up from 4.1% in 2022. However, Gross, known as the “Bond King” and co-founder of PIMCO, believes that the former president’s policies would cause greater disruption.

Gross explains that Trump’s advocacy for continued tax cuts and increased spending would contribute to a more bearish outlook. Trump has pledged to make his 2017 tax cuts permanent, while Biden has proposed allowing the cuts to expire but not raising taxes for those earning below $400,000 per year.

Highlighting the ballooning federal deficits and the Treasury Department’s flood of bond issuances, Gross points out that this surge in supply, amounting to a $2 trillion annual increase, would put pressure on the bond market. He also expresses a bearish sentiment towards stocks, cautioning investors to temper their expectations and not assume the same level of returns as seen in the 24% increase of the S&P 500 last year.

The escalating U.S. debt and deficit situation has raised concerns on Wall Street, with industry leaders like Larry Fink of BlackRock, Jamie Dimon of JPMorgan, Brian Moynihan of Bank of America, and Ken Griffin of Citadel voicing similar apprehensions. Treasury Secretary Janet Yellen also acknowledges the challenges of managing deficits and debt expenses in the face of a long-term outlook of higher interest rates.