Bill Gross: Watch US Treasuries for signs of bond bear market

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Investors should be looking at 10-year Treasury yields instead of focusing on the Dow Jones hitting 20,000, star investor Bill Gross has warned.

If the 10-year Treasury note hits 2.6 per cent a secular bond bear market has begun, the manager of the $1.7bn Janus Global Unconstrained Bond fund says in his latest monthly investment outlook.

Since Trump’s election in November, the 10-year Treasury yield has jumped 100 basis points from 1.4 per cent to 2.4 per cent as the forecast for inflation rises and markets anticipate a more hawkish US Federal Reserve.

“Watch the 2.6 per cent level,” Gross says in what he suggests will be his only forecast for 2017.

“Much more important than Dow 20,000. Much more important than $60-a-barrel oil. Much more important that the Dollar/Euro parity at 1.00. It is the key to interest rate levels and perhaps stock price levels in 2017.”

Gross says it is yet to be seen whether Republican/Trumpian orthodoxy can stimulate an economy nearing full capacity.

“To do so would require a significant advance in investment spending which up until now has taken a backseat to corporate stock buybacks and merger/acquisition related uses of cash flow.”