Buy short-term T-bills because the debt ceiling deal is coming: Bill Gross

Blame the cautious mood on anxiety ahead of Wednesday’s inflation data, but also as concerns about the debt ceiling build after Treasury Secretary Janet Yellen warned earlier this week that the sky would fall if the conflict is not resolved. President Joe Biden and Republican lawmakers are due to meet on Tuesday.

To be sure, it’s serious when the government is threatened with an inability to borrow and meet its financial obligations in full — throwing into question payments for Social Security and Medicare, tax refunds, etc. A bipartisan think tank has warned that the ceiling could be hit which in early June blocked a deal on Capitol Hill.

But take it easy, says ours today̵[ads1]7;s conversation from the most carefree billionaire Bill Gross who advises investors to go out and buy bonds because this too shall pass.

“I think it’s ridiculous. It is always fixed and not that there is a 100% chance, but I think it will be fixed. “The problem lately has resulted in Treasury yields near the point of potential default moving higher by 50 or 100 basis points, and they have this time,” Gross told Bloomberg in an interview late Monday.

The former Pimco founder suggests that those who are less worried like him should buy one- and two-month Treasury bills “at a much higher rate than they get with longer-term Treasuries.”

The legendary bond fund manager was once revered on Wall Street as the bond king and one of the most influential bond investors ever, hailed for guiding investors through the global financial crisis while at Pimco.

While Yellen’s warning has brought attention back to the debt ceiling issue as earnings season draws to a close, investors seem less sanguine than Gross, as they have shunned debt that could be hit by a possible default.

Yields on 3-month T-bills recently rose to levels not seen since January 2001, with yields on 1-month T-bills hovering at levels not seen since 2008, yielding around 5.354%, versus 3.48% for the 10 – year treasury notes

BX:TMUBMUSD10Y.

Read: Why it might take “a stock market meltdown” to solve the debt ceiling problem

Investors are currently focusing on the so-called X-date due to disappointing tax revenues in April that have left the Treasury without an ace up its sleeve to continue meeting payments. As for stock investors, the “sell in May and walk away” adage might work for those less confident that everything will be OK, Gross assures.

“Failure to raise the debt ceiling will be a major risk for the economy and the markets,
and even a “close call” in 2011 resulted in significant underperformance for stocks
versus bonds,” said a team of Morgan Stanley strategists led by Andrew Sheets.

Gross had some other advice for investors, telling Bloomberg that he avoids high-yield credit and looks for “safe havens” in places like energy pipeline partnerships. He also offered some more liquid exchange-traded funds to protect against Fed inflation—the Vanguard Short-Term Inflation-Protected Securities ETF

JOKE

and the iShares 0-5 Year TIPS Bond ETF

DOT.

Read: What does weak stock market breadth mean for your portfolio? Here’s what one Wall Street analyst found.

The markets

Stock futures

ES00

YM00

NQ00

is lower, as Treasury provides

BX:TMUBMUSD10Y

BX:TMUBMUSD02Y

pull back. Coarse

CL

also giving back some of Monday’s 2% rally. The dollar

DXY

is up some.

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The uproar

Under Armour

UAA

The stock is down after a disappointment in the outlook from the sportswear manufacturer. Hain Celestial stock

HAIN

is down 9% on an income miss for the organic products company and the fuel cell group Plug Power

PLUG

is down 9% on a bigger than expected loss. Novavax

NVAX

reported positive results for three flu vaccine trials and COVID, but reported a loss and will lay off 25% of workers.

Airbnb

ABNB,

Duolingo

of,

Rivian

TORN,

Wynn Resorts

WYNN

and Akamai

MY BROTHER

due later.

As of late Monday earnings, Palantir

PLTR

the share is up 18% after the second profit in a row since the software group’s IPO. Shoals Technologies

SHLS

is up 12% following the solar energy component group’s forecast-saving results and positive outlook. Telecom system manufacturer Harmonic

HLIT

is up 7% after topping Wall Street forecasts.

Read: The peloton is still struggling. But one analyst who foresaw the difficulties early on says the problems have been priced in.

EV manufacturer Lucid

LCID

is down 9% on steeper quarterly losses and a guidance adjustment. PayPal

PYPL

is down 4% after the online payments group cut a margin forecast. Chipmaker Skyworks Solutions

SWKS

is down 9% after disappointing outlook. Wayfair

W

is down 6% after the online furniture retailer on news of the issuance of convertible notes.

Fight Sealy

TPX

will buy privately held Mattress Firm Inc. in a $4 billion deal.

Abroad, UBS

UBS

CH:UBSG

has reshuffled parts of its top deck ahead of the takeover of Credit Suisse

CS

CH: CSGN

that it expects to happen in the next few weeks.

A day out until April CPI data, the calendar is blank except for speeches by Fed Governor Philip Jefferson at 8.30 and New York Fed President John Williams at 12.05.

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