The Federal Reserve's monetary policies have pushed Treasury yields too low to make them attractive investments, says Bill Gross, head of Pimco, the world's largest bond fund.
Monetary authorities are keeping interest rates too low despite rising inflation threats, which makes U.S. government debt instruments less appealing.
"The near-term market has been unduly influenced by quantitative easing," Gross tells CNBC, referring to the Fed's $600 billion bond buyback program designed to pump money into banks and incentivize them into lending more.
|Bill Gross (Pimco photo)
"We've had two huge buyers in the Treasury market at artificial levels. Basically the Chinese and others aren't that picky in terms of the interest rates that they see. What they want are jobs for their countrymen."
The result, says Gross, is that Federal Reserve is pushing up stocks prices to ultimately increase economic activity.
"What they want to do is support stock prices and asset prices, and they've done so," Gross says.
"Treasury yields at these levels are very unattractive."
Until things change, investors should look to neighboring Canada and Mexico for government debt.
Inflation, however, is on the radar screen, says Fed Chairman Ben Bernanke.
"So long as inflation expectations remain stable and well anchored" and the rise in commodity prices slows, as he’s forecasting, then "the increase in inflation will be transitory," says Bernanke, according to Bloomberg.
"We have to monitor inflation and inflation expectations extremely closely because if my assumptions prove not to be correct, then we would certainly have to respond to that and ensure that we maintain price stability."
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