Bill Gross says US10Y should be 3.75%, based on 2.5% inflation and new dot plot

The yield on the 10-year US Treasury bond (US10Y) should be 3.75% based on 2.5% inflation and the Federal Reserve’s latest Summary of Economic Projections (SEP), according to famed bond investor Bill Gross.

The Federal Reserve’s rate-setting committee on Wednesday cut its benchmark lending rate by a half-point and issued its updated SEP, or “dot plot.”

In the SEP, the Federal Open Market Committee indicated inflation is expected to return to near its 2% target by the end of the year. The median estimate for personal consumption expenditures inflation stood at 2.3% for 2024, 2.1% for 2025, 2.0% in 2027, and 2.0% over the longer run. Core PCE inflation, which strips out volatile food and energy prices, is seen returning to target by 2026.

Core PCE was 2.5% in July, according to data released last month.

The yield on the 10-year Treasury (US10Y) was 3.736% in early Thursday afternoon trading.

See live data on how Treasury yields are doing across the curve on the Seeking Alpha bond page.

Gross on X (formerly Twitter) on Wednesday said he would stick with a yield curve US2Y/US5Y steepner.

Gross also said he liked mortgage real estate investment trusts Annaly Capital Management (NLY), AGNC Investment (AGNC), and Dynex Capital (DX), as well as midstream oil and gas company Western Midstream Partners (WES).

Bill Gross used to manage the world’s largest bond fund at investment manager Pacific Investment Management Co. (PIMCO), which he co-founded.

Some REIT funds worth monitoring are: (VNQ), (XLRE), (IYR), (USRT), and (HOMZ).