Tags: bonds

Gross: Debt Onslaught Boosting Bond Yields

By    |   Friday, 29 May 2009 10:32 AM

Superstar bond fund manager Bill Gross says the raft of debt being issued by the U.S. Treasury is pushing bond yields higher.

The 10-year Treasury note rose to a six-month high of 3.75 percent Wednesday amid concern about the $2 trillion of debt that the Treasury will sell to the bond market this year.

The money is needed to finance the government's budget deficit. The Congressional Budget Office estimates the deficit will total $1.7 trillion in fiscal 2009, ending Sept. 30.

"The Treasury is issuing a lot of money," Gross, co-chief investment officer of PIMCO, told Bloomberg. "The market is beginning to wonder who is going to be buying these bonds."

Like many other experts, Gross is concerned that the rising U.S. debt burden will send inflation surging higher.

"There's becoming an embedded inflationary premium in the bond market that wasn't there six months ago," he says.

Inflation may accelerate to 3 percent or 4 percent in three years, Gross says. The consumer price index fell 0.7 percent in the year through April.

The Federal Reserve has indicated it prefers an inflation range of 1.7 percent to 2 percent.

For weeks, Gross has been saying that U.S. Treasuries are overvalued. Many experts agree.

"Given the extent of the supply that Treasury will be issuing, that will probably limit the ability to see a longer-term downturn in yields," John Canavan, a fixed-income analyst at Stone & McCarthy Research Associates, tells Marketwatch.

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Superstar bond fund manager Bill Gross says the raft of debt being issued by the U.S. Treasury is pushing bond yields higher.The 10-year Treasury note rose to a six-month high of 3.75 percent Wednesday amid concern about the $2 trillion of debt that the Treasury will sell...
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2009-32-29
Friday, 29 May 2009 10:32 AM
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