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Gross: US Yields Too Low as Fed Nears End of QE2

Wednesday, 02 Mar 2011 10:38 AM

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said yields on Treasurys may be too low to sustain demand for U.S. government debt as the Federal Reserve approaches the end of its second round of quantitative easing.

Treasury yields are about 150 basis points too low when viewed on a historical context and when compared with expected nominal gross domestic product growth of 5 percent, Gross wrote in a monthly investment outlook posted today on the Newport Beach, California-based company’s website.

“A successful handoff from public to private credit creation has yet to be accomplished,” Gross said. “That handoff will ultimately will determine the outlook for real growth and the potential reversal in our astronomical deficits and escalating debt levels.”

Gross reduced in January the holdings of U.S. government and related debt in Pimco’s $239 billion Total Return Fund to the smallest proportion in two years. The securities were cut to 12 percent of assets, from 22 percent in December, according to a statement on the firm’s website Feb. 14. The proportion of cash-equivalent holdings was increased to 5 percent, the highest since April.

Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.24 trillion of assets as of December.

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