Tags: Gross | 10-year | Fed | yield

Pimco's Gross: 10-Year Treasury Yield Belongs Where it Is

By    |   Thursday, 05 December 2013 08:33 AM

The 10-year Treasury note, which currently yields 2.83 percent, is fairly valued, says Bill Gross, co-chief investment officer at fund giant Pimco.

"I think the 10-year belongs close to 2.5 to 3 percent. That's where it is," he told CNBC.

And Gross believes that unemployment, which was 7.3 percent in October, will soon fall to 7 percent or even lower. "It's to some extent artificial in terms of how it's measured, but I think it will fall," he said.

Editor’s Note:
Weird Trick Adds $1,000 to Your Social Security Checks

The Federal Reserve has indicated that it won't consider raising the federal funds rate target — currently at a record low of zero to 0.25 percent — until unemployment hits 6.5 percent.

"I do think the Fed will not move until it's at least 6.5 percent and then perhaps even lower," he noted. "So policy rates of 25 basis points will be with us for another two, three, maybe even four years."

Gross is just as confident of Pimco's Fed-watching abilities as he's ever been. "Pimco's strategy is based explicitly on timing what the Fed is going to do," he explained.

"We think, for instance, that Janet Yellen's Fed is going to be focused on exiting QE [quantitative easing] and initiating forward guidance policy, which encourages bond investors like Pimco to take its place."

By forward guidance, Gross means the Fed informing investors that it will keep short-term interest rates low for a long time. When he refers to Pimco taking the Fed's place, he means as a buyer of bonds.

"Why would an investor do that?" he asked. "Only if Janet Yellen and the Fed anchored policy rates [the fed funds rate] at 25 basis points for a long, long time. So, that near-certainty, in our opinion, leads to a strategy of outperformance going forward."

Pimco's flagship Total Return fund, while it has lost 1.4 percent year-to-date, has outperformed the broad bond market by 1 percentage point, Gross asserted.

"We've constantly been able to move ahead of the Fed, move ahead of the market," he said. "I think going forward, as long as can you properly analyze . . . the Fed, then you can actively manage and produce alpha [excess return]."

Going forward, Gross projects 2 to 4 percent returns for bonds and 5 to 6 percent for equities. Investors might not be excited by those bond returns, Gross acknowledged. "But over a longer period of time, the country's getting older, and they prefer fixed income as opposed to the risk of the equity market," he said.

One strategist who thinks stocks can do better than 5 to 6 percent next year is Adam Parker, chief U.S. equity strategist for Morgan Stanley.

He predicts the Standard & Poor's 500 Index will reach 2,014 next year, a 12.3 percent gain from Wednesday close of 1,793.

A Fed tapering would actually be good for stocks, he wrote in a report obtained by The Wall Street Journal. "Why would tapering be associated with more fear about corporate earnings?” he asked. A tapering might actually provide a good buying opportunity, Parker explained.

Editor’s Note: Weird Trick Adds $1,000 to Your Social Security Checks

Related Stories:

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
InvestingAnalysis
The 10-year Treasury note, which currently yields 2.83 percent, is fairly valued, says Bill Gross, co-chief investment officer at fund giant Pimco.
Gross,10-year,Fed,yield
551
2013-33-05
Thursday, 05 December 2013 08:33 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved