Bill Gross said he’s betting that part of the interest-rate curve will return to a more normal pattern, eliminating the inversion that’s persisted even after the Federal Reserve stopped raising interest rates.

Gross, the co-founder and former chief investment officer of Pacific Investment Management Co., said on social media X that he’s buying September 2024 contracts tied to the Secured Overnight Financing Rate and selling the September 2025 one.

Currently, the rate on the shorter contract was about 98 basis points higher than the longer one, in what’s known as an inversion of the yield curve. Gross’s bet would pay off as the gap between the two narrows.

“Finance-based capitalism depends on a positive yield curve,” Gross said. “If negative, the curve makes it easier to get a higher return for less risk which is destructive to the economy because investors logically reduce risk under these circumstances.”

The so-called curve steepening trade has been popular in recent months, with investors expecting that short-term bond yields will come down faster than longer-term ones when the Fed starts cutting interest rates. At 4.1%, the 10-year Treasury yield is about 30 basis points below the two-year yield. The gap was more than 100 basis points as recently as in July.

Gross manages his own money currently after retiring from the money management business in 2019.

He has been calling for the yield curve to turn positive for a while, and much of the Treasury market has become less inverted. But long rates continue to hold below short ones.

“U.S. curve has been negative for 1.5 years now and in certain parts the 6 month/18 month curve is as negative as ever in past 50 years,” wrote Gross. “Make the curve your interest rate strategy.”

This article was provided by Bloomberg News,