(Bloomberg) -- Retail investors in exchange-traded funds have joined the ranks of “bond vigilantes” and their sharp pullout last week led to an oversold market, said Bill Gross, co-founder and former chief investment officer at Pacific Investment Management Co.

Individuals owning hundreds of billions of dollars worth of bond ETFs have been “spooked” by recent losses, and they are “joining the crowd in terms of selling,” Gross said in an interview on Bloomberg Television. “We are seeing a little bit of oversold market” as 10-year Treasury yields approach 5%, he said. 

He said that 10-year yields at 5% would provide “decent” but not “great value” since inflation remains elevated. That yield rose as high as 4.88% Wednesday before reversing course and dropping below 4.75%.

The recent selloff in the bond market stemmed from supply pressures to finance the swelling government budget deficit, the Federal Rerserve’s unwinding bond holdings and its commitment to keeping rates elevated for longer, said Gross, who retired from asset management in 2019. 

Redemptions by individual investors, who Gross called the “little bond vigilante,” deepened the rout over the past week as ETFs were forced to sell holdings. Economist Ed Yardeni coined the expression “bond vigilante” in the 1980s to describe investors who threaten to dump a large amount of bonds to scare governments into fiscal discipline. 

Investors withdrew $516 million from the $89 billion iShares Core U.S. Aggregate Bond ETF last week, the most in a year, according to data compiled by Bloomberg.

While Gross acknowledged calling ETF investors the modern day vigilante may be  “a little bit of a stretch,” their selling, nonetheless, has been significant enough to move the market. 

“What I see are these smaller vigilantes joining the Treasury and the Fed in terms of negative pressure” on bonds, he said.

--With assistance from Katie Greifeld and Romaine Bostick.

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