Bill Gross Advises Buying T-Bills to Bet Debt-Ceiling Issues Will Be Resolved

(Bloomberg) — Bill Gross, the former chief investment officer of Pacific Investment Management Co., recommended buying short-term Treasury bills, expecting the debt-ceiling issue eventually gets resolved.

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“It’s ridiculous. It is always resolved, not that it is a 100% chance, but I think it gets resolved,” Gross said on Bloomberg Television’s ETF IQ Monday. “I would suggest for those who are less concerned, similar to myself, that they buy one-month, two-month Treasury bills at a much higher rate than they can get from longer-term Treasury bonds.”

Rates on short-dated bills have soared ahead of the so-called ‘X-date’ early next month, after Treasury Secretary Janet Yellen warned last week that the government could run out of cash as soon as June 1. Anxiety that Congress will fail to lift the debt ceiling on time has manifested in the highest yields ever at last week’s four- and eight-week bill auctions, while Monday’s three-month sale offered the loftiest rate since 2001.

But such dislocations have been a common feature of previous episodes of debt-cap angst, which have always been worked out, Gross said.

“The problem in the past has resulted in Treasury bill rates close to the point of potential default, moving higher by 50 or 100 basis points,” Gross said. “They have done that this time.”

Last month, Gross said he had purchased bank stocks including Western Alliance Bancorp, Synovus Financial Corp. and PacWest Bancorp as well as SPDR S&P Regional Banking ETF (ticker KRE), citing them as “an enticing long-term investment.”

Since then, concerns about small banks renewed with the collapse of First Republic Bank worsening fears about the solvency of regional lenders. While these banks have stabilized “to some extent” and underlying value remains, sentiment toward the sector remains fragile, he said.

“We have a situation where there is value, but we’ve also got a situation where investors are still leery, based upon deposits and lack of deposits,” Gross said.

So instead of taking directional bets, Gross said he’s been using options to bet volatility on bank stocks, such as Western Alliance and Zions Bancorp, will decline.

“They provide a very potentially profitable investment as opposed to buying the stock or selling the stock,” Gross said.

Gross, who retired from asset management in 2019, said he’s shunning high-yielding credit and looking for “safe havens.” About 30% of his personal investment is in energy pipeline partnerships, such as Energy Transfer LP, which offers tax advantage with about 10% yields, he said.

He also said that as the Federal Reserve fights to cool inflation back down to its 2% target, investors should own inflation-protected bonds through vehicles such as the $15 billion Vanguard Short-Term Inflation-Protected Securities ETF (VTIP) and the $12.6 billion iShares 0-5 Year TIPS Bond ETF (STIP), which are far more liquid than the securities themselves.

“I’ve found it’s much easier to get in and out on these ETFs,” Gross said.

–With assistance from Alexandra Harris and Matthew Miller.

(Updates with additional context on Treasury bills, regional banks and liquidity.)