'It's ridiculous.' Buy short-term Treasury bills because debt-ceiling deal will come, says bond legend Bill Gross

By Barbara Kollmeyer

Critical information for the U.S. trading day

Friday's bullish session on Wall Street seems to have gone nowhere, save for the Nasdaq Composite wriggling its way out of a bear market.

Read: History shows what follows the Nasdaq exiting a bear market

Blame that cautious mood on anxiety ahead of Wednesday's inflation data, but also as debt-ceiling worries build after Treasury Secretary Janet Yellen start-of-the-week warning the sky would fall if the standoff doesn't get resolved. President Joe Biden and Republican lawmakers are set to meet Tuesday.

No doubt, it's serious when the government is threatened with an inability to borrow and meet its financial obligations in full --putting in doubt payments for Social Security and Medicare, tax refunds, etc. One bipartisan think tank has warned that ceiling could be hit as early as June barring agreement on Capitol Hill.

But rest easy, says our call of the day from the most unworried billionaire Bill Gross whose advises investors to go out and buy bonds because this too shall pass.

"I think it's ridiculous. It's always resolved and not that it's 100% chance, but I think it gets resolved. The problem in the past has resulted in Treasury bill rates close to the point of potential default, moving higher by 50 or 100 basis points, and they've done that this time," Gross told Bloomberg in an interview late Monday.

The former Pimco co-founder suggest those who are less worried like him should buy one and two-month Treasury bills "at a much higher rate than they get with a longer term Treasury bonds."

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

While Yellen's warning has been swinging attention back on the debt-ceiling issue, now that earnings season is drawing to a close, investors seem less brave than Gross, though, as they've been shunning debt that could be hit by a possible default.

Yields on the 3-month Treasury bill recently surged to levels not seen since January 2001, with the yield on one-month T-bills hovering at levels not seen since 2008, yielding around 5.354%, versus 3.48% for that of the 10-year Treasury notes .

Read: Why it might take 'a stock-market meltdown' to resolve the debt-ceiling standoff

Investors for now are focusing on the so-called X-date due to disappointing tax receipts in April that have left the Treasury without an ace up its sleeve to keep meeting payments. As for stock investors, maybe that "sell in May and Go Away adage" works for those less confident this will all be OK as Gross assures.

"Failure to raise the debt ceiling would be a major risk to the economy and markets,and even a 'close call' in 2011 resulted in significant underperformance of equitiesversus bonds," said a team of Morgan Stanley strategists led by Andrew Sheets.

Gross had some other advice for investors, telling Bloomberg that he's avoiding high-yielding credit and looking for "safe havens," in places such as energy pipeline partnerships. He also offered up some more liquid exchange traded funds to protect against Fed-inflation fighting moves -- Vanguard Short-Term Inflation-Protected Securities ETF (VTIP) and iShares 0-5 Year TIPS Bond ETF (STIP).

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

The markets

Stocks are trading lower, with Treasury yields mixed. Crude is also giving back some of Monday's 2% rally. The dollar is up 0.4%.

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor's Business Daily.

The buzz

Under Armour (UAA) stock is down after an outlook disappointment from the athletic wear maker. Hain Celestial stock (HAIN) is down 9% on a revenue miss for the organic products company, and fuel-cell group Plug Power (PLUG) is off 9% on a bigger-than-expected loss Novavax (NVAX) reported positive results for three flu vaccine trials and COVID, but posted a loss and will axe 25% of workers.

Airbnb (ABNB), Duolingo (DUOL), Rivian (RIVN), Wynn Resorts (WYNN) and Akamai (AKAM) are due later.

From late Monday's earnings, Palantir (PLTR) stock is up 18% after the second-straight profit since the software group's IPO. Shoals Technologies (SHLS) is up 12% after the solar components group's forecast-beating results and upbeat outlook . Telecom systems maker Harmonic (HLIT) is up 7% after topping Wall Street forecasts.

Read: Peloton is still struggling. But an analyst who predicted its difficulties early on says its problems are priced in

EV maker Lucid (LCID) is down 9% on steeper quarterly losses and a guidance tweak. PayPal (PYPL) is down 4% after the online payments group cut a margin forecast. Chip maker Skyworks Solutions (SWKS) is off 9% after a disappointing outlook. Wayfair (W) is down 6% after the online furniture retailer on news of convertible notes issuance

Tempur Sealy (TPX) will buy privately-held Mattress Firm Inc. in a $4 billion deal.

Overseas, UBS (UBS) has reshuffled part of its top deck ahead of the takeover of Credit Suisse (CSGN.EB) that it expects to happen in the next few weeks.

One day out to April CPI data, the calendar is empty except for speeches by Fed Gov. Philip Jefferson at 8:30 a.m. and New York Fed President John Williams at 12:05 p.m.

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The chart

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

Ticker  Security name 
TSLA    Tesla 
PLTR    Palantir Technologies 
AMC     AMC Entertainment 
GME     GameStop 
MULN    Mullen Automotive 
PYPL    PayPal 
PACW    PacWest 
AAPL    Apple 
TRVN    Trevena 
BUD     Anheuser-Busch InBev 

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-Barbara Kollmeyer

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05-09-23 1032ET

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