Tags: Crescenzi | bond | rates | Treasury

Pimco's Crescenzi: Stick With Bonds

Sunday, 01 Sep 2013 01:46 PM

By John Morgan

Bond bearishness has gotten out of hand, according to Tony Crescenzi, Pimco executive vice president, market strategist and portfolio manager. Instead, he makes the somewhat contrarian case that "yields will move lower from here" for a variety of reasons.

Investment firm Pimco, a huge player in the bond market and one of the largest global fixed income managers in the world, saw $7.4 billion worth of outflows in July, and double that drawdown in June.

But Crescenzi told CNBC there is reason to believe the worst may be over, and that conditions that have seen the yield on the 10-year Treasury note jump from about 1.6 percent to over 2.9 percent are easing.

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First, off, "what's priced into the bond market is the idea that the economy, in 2014, will accelerate," he said. But Crescenzi believes the jury is still out whether the economy will gain that much steam.

He also doubts inflation is going to re-emerge as a drag on bond prices. Crescenzi explained that the "inflation battle has been fought" and predicted the Federal Reserve is unlikely to need to hike rates in order to put an anchor on inflation.

While there may be a high likelihood the Fed will trim its market-supporting bond purchases in September, "there won't be a rate hike until 2015 at the earliest, and we think 2016," Crescenzi told CNBC.

His prediction: rates will fall back to the low to mid 2 percent mark by the end of 2013.

Jeffrey Gundlach, chief executive and chief investment officer of DoubleLine Capital, begs to differ with that bond outlook, according to Reuters.

Gundlach predicted the yield on the 10-year U.S. Treasury note could hit 3.10 percent by the end of 2013.

"If the 10-year goes to 3.50, I think you're going to see serious downward movements in risk assets, and that would stop the interest rate rise in its tracks," Gundlach said.

Forbes contributor Sy Harding wrote in a column last week that while a bond sell-off might have been justified earlier in the year, it may also be overdone at this point.

"Bonds are significantly more oversold beneath their long-term 200-day moving average than at any time in at least the last 15 years," Harding declared.

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