The bond market is being held captive by Treasury supply and bond vigilantes, and the key 10-year yield will probably go to 5%, bond king Bill Gross says

  • The yield on the 10-year US Treasury is likely to hit 5%, according to Bill Gross.

  • The PIMCO co-founder pointed to a handful of factors sparking a selloff in Treasurys.

  • The yield on the 10-year Treasury climbed further early Wednesday morning, touching 4.88%.

The bond market is being held captive by a handful of factors – and those will likely push the yield on the 10-year US Treasury to around 5%, according to "Bond King" Bill Gross.

The legendary investor and PIMCO co-founder pointed to surging bond yields, with the 10-year Treasury yield recently notching a 16-year-high. That's the product of several bearish forces weighing on the market, including the growing supply of US Treasurys, the perceived risk of the rising national debt, and higher-for-longer interest rates from the Fed.

Large bond ETFs are experiencing higher trade volumes, which suggest that small retail investors are dumping their bonds. That trend could be chalked up to bond vigilantes, Gross said, referring to retail investors who pressure the government to rein in its spending by selling off Treasurys.

Those factors will likely take the 10-year-yield to around 5% over the near term, he predicted, not much higher from its current level. The yield on the 10-year Treasury bond climbed further early Wednesday morning, touching 4.88%.

"When we go to 5 [percent] … the market is certainly oversold at the moment," Gross said in an interview with CNBC on Wednesday.

"The bond market is a captive of not only the Treasury market, the Treasury supply, the Fed, and as I mentioned, the retail bond vigilantes, which don't like 3-4% price declines over the last week," he later added, referring to falling bond prices.

Gross joins other Wall Street heavyweights who have made similar predictions recently about US bond yields.

Last week, Bill Ackman and Larry Fink said they see inflation remaining higher and expect US Treasury yields to soon hit 5%.

Higher bond yields could also pose a bigger risk to stocks, Gross has previously warned, as higher yields can lower the attractiveness of equities to investors.

In his view, the Fed is also unlikely to lower inflation back to its 2% price target without sparking a recession, echoing calls from other experts that inflation could rebound and stoke more volatility in markets.

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