US deficit: Bill Gross warns Trump would be ‘more disruptive’ for the bond market

If Donald Trump returns to the White House, it would worsen budget deficits and the bond market would suffer more than under another Joe Biden term, longtime bond investor Bill Gross said Sunday.

In an interview with the Financial Times, he acknowledged that Biden has also overseen an explosion in U.S. debt with deficits soaring to 8.8% of GDP last year from 4.1% in 2022. Still, the so-called Bond King, who cofounded PIMCO, sees more trouble from the former president than the current one.

“Trump is the more bearish of the candidates simply because his programs advocate continued tax cuts and more expensive things,” Gross told the FT, later adding “Trump’s election would be more disruptive.”

That comes as Trump has vowed to make his 2017 tax cuts permanent, while Biden has said he would let the cuts expire but wouldn’t let taxes go up for Americans who earn less than $400,000 a year.

A spokesman for Trump’s campaign didn’t immediately respond to a request for comment.

As federal deficits continue to reach the trillions, the Treasury Department has issued a flood of bonds. And with the Federal Reserve keeping rates higher for longer and shrinking its balance sheet, that’s weighed on bond prices. The Congressional Budget Office has forecasted a $1.6 trillion deficit in fiscal 2024.

“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.

He also sounded bearish on stocks, saying investors “need to temper their expectations” and not assume the S&P 500 will keep returning 24% like it did last year.

“Over time the markets should mean revert. To me, that means prices going up less than they have,” he told the FT. “If people are expecting 10 or 15%, [they] are going to be working with slimmer budgets.”

The worsening U.S. debt and deficit situation has been raising more red flags on Wall Street in recent months.

In March, BlackRock CEO Larry Fink sounded the alarm, joining JPMorgan CEO Jamie Dimon and Bank of America CEO Brian Moynihan. And last month, Citadel’s Ken Griffin said the U.S. is being “irresponsible” with national debt.

Even Treasury Secretary Janet Yellen acknowledged on Friday that the outlook for higher rates over the long term will make it harder to keep deficits and debt expenses under control.

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