Billionaire investor Bill Gross warns of more pain for bond investors with fixed-income on track for unprecedented 3-year slump

• Billionaire investor Bill Gross warned the bond market is headed for a record third year of losses.
• He underscored inflation and a growing national deficit as reasons for his bearishness.

Billionaire investor Bill Gross warned of more pain for bond investors as US fixed-income assets head for an unprecedented three-year slump.

"I think that bonds are headed for a third straight year of losses and that portfolios should own more pipeline MLPs (Master Limited Partnerships) and fewer Treasury and corporate bonds," the so-called "Bond King" said in a Thursday investment outlook.

Gross pointed to lingering inflation risks and a widening national deficit - a result of accelerated government spending - as reasons for his bearish view of the bond market.

"The government first threw money out of a helicopter and almost all of it has been spent, sending inflation beyond all prior expectations. Taming it and lowering it to 2% will be most difficult and a bond bull market under those circumstances is hard to envision in a 3% future," Gross said.

Government bond yields surged Thursday after the Federal Reserve kept interest rates unchanged at 5.25%-5.5%, and signaled borrowing costs will remain higher for longer.

The 10-year US Treasury rate jumped to a high of 4.49% following the news – it's highest level since 2007, while the 2-year yield surged to a 17-year high.

According to Gross, "the 10 year Treasury is already priced for a 2% inflationary world." Meanwhile, about 30% of outstanding Treasurys will mature over the next 16 months, he added.

"Who's going to buy them at existing yield levels?" Gross said. "While the Fed may hint at a time in 2024 where they can reduce short term yields, it may not be enough to lower 10 year Treasuries below 4.0%," he continued.