The prospect of an interest-rate increase by the Federal Reserve doesn't make all bonds toxic, but stick to short maturities, says star bond investor Bill Gross of Janus Capital Group.
"In the short term, bond investors are safe for six to 12 months, but not for 10 to 30 years," he told Yahoo
The 10-year Treasury yield dropped to a 20-month low of 1.64 percent Friday and stood at 1.73 percent Tuesday.
Gross said he himself suffered losses from 1979 to 1981 when the 10-year Treasury yield soared above 15 percent. "Be careful when you're making a longer-term commitment and interest rates are so low."
If long-term rates soar now, it will be because both Europe and the United States enjoy solid economic growth, he explained.
Gross repeated his view that the Fed is likely to begin raising interest rates in June or July, "but a small increase and probably one only for the year would be my guestimate."
Meanwhile, Gross' rival Jeff Gundlach, CEO of DoubleLine, sees no reason for a Fed move.
"I think it's obvious the world is dealing with deflationary situation," he told CNBC
. He cited flattening yield curves, a strengthening dollar and collapsing commodity prices.
"You wonder what they [Fed officials] are thinking about raising interest rates," Gundlach said. "Their [inflation] goal is 2 percent. You haven't had 2 percent in like forever, and it's going the other way."
The personal consumption expenditures price index rose only 0.7 percent in the 12 months through December, the smallest increase since October 2009.
"What is the logic for raising short-term interest rates? The logic they don't like having no tools," Gundlach noted. "So when and if the economy rolls over, [and the federal funds rate is at zero,] you're in a very bad situation."
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