BlackRock fund managers think Pimco co-CEO Bill Gross is wrong about record budget deficits and sales of government debt eventually spurring inflation.
BlackRock is rushing to add more bonds to its portfolio after Gross, who manages the biggest bond fund, reduced his company’s bond stake by 20 percent.
“There isn’t inflation in the pipeline,” BlackRock’s U.S. bond head Stuart Spodek says. “The yield curve is remarkably steep.”
The highest 10-year Treasury note yields since 2008 are proving too good for BlackRock to pass up. “We’re more comfortable owning longer Treasuries,” Spodek told Bloomberg.
The difference between the Pimco and BlackRock outlooks illustrates the challenge facing President Barack Obama as the United States sells more than $2 trillion of debt and the Federal Reserve withdraws emergency funding measures that propped up the economy during the worst financial crisis since the Great Depression.
Tuesday, the yield on the benchmark 10-year Treasury note maturing in February 2020 was flat in late trading at 3.80 percent. Its price was 98 18/32. The yield on the 10-year note is linked to rates on mortgages and other consumer loans.
Yields of other Treasuries were slightly higher.
Positive signals on the economy tend to send bond prices lower, and their yields higher, as investors get concerned about the possibility of inflation and higher interest rates.
In other trading, the yield on the two-year note that matures in March 2012 rose to 1.02 percent from 0.99 percent. Its price fell 2/32 to 99 31/32.
The yield on 30-year bond that matures in February 2040 fell to 4.68 percent from 4.70 percent, while its price rose 10/32 to 99 5/32.
The yield on the three-month T-bill that matures July 22 was unchanged from 0.14 percent. Its discount rate was 0.15 percent.
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