Bill Gross, who manages the world’s biggest bond fund for Pimco, expects German and Brazilian bonds to outperform U.S. Treasuries.
In the U.S., the budget deficit, which totaled $1.4 trillion last year, will push up Treasury yields faster than German government bonds, Gross said.
And while the U.S. will likely endure huge deficits for years, Germany has a constitutional amendment requiring a balanced budget by 2016.
“(It) is the most fiscally conservative, has half the deficit of the United States, potentially has a low inflation rate, and they yield about the same,” Gross told Bloomberg, comparing U.S. and German 10-year government bonds.
The 10-year U.S. Treasury now yields about 45 basis points more than the equivalent 10-year bund.
Brazilian bonds, which make up 2 percent of Gross’ Pimco Total Return Fund, also are attractive, he says.
“Brazil has the highest real interest rates in the world,” he pointed out.
“They have an upwards slanted economy growing at 4 to 5 percent a year with contained inflation.”
Brazil’s 10-year government bond yields 11.22 percent.
Gross isn’t the only big investor betting against Treasuries.
Hedge fund luminaries John Paulson and Julian Robertson are doing the same.
They are concerned about fiscal and monetary stimulus.
“It will be difficult for the government to withdraw the economic stimulus,” Paulson said in a recent speech.
“An increase in the monetary base leads to an increase in the money supply, which leads to inflation.”
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