Bill Gross: Treasuries' climb this week was misguided

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said gains in Treasuries this week were misguided.

Ten-year securities snapped two days of gains today. They advanced earlier amid speculation economic growth will slow as the Federal Reserve reduces its stimulus efforts, Gross said. Several policy makers said at the Fed’s last meeting that officials should be ready to vary the pace of its $85 billion in monthly bond purchases, according to minutes of the central bank’s Jan. 29-30 meeting released this week.

“The Treasury market has caught a bid based upon that potential expectation,” Gross said yesterday in New York on Bloomberg Television’s “Street Smart” with Trish Regan and Adam Johnson. “I sort of think otherwise. Yields, certainly in the mortgage market, and the Treasury market, might go up.”

The U.S. 10-year yield was little changed at 1.98% at 8:31 a.m. New York time, according to Bloomberg Bond Trader data. The price of the 2% note due in February 2023 was at 100 5/32. The yield dropped five basis points, or 0.05 percentage point, during the previous two days.

Treasuries returned 0.1% this week as of yesterday, according to Bank of America Merrill Lynch indexes. They have generated a 0.8% loss this year, the data show.

The U.S. central bank buys bonds to pump money into the economy, and it will probably stick to the policy through 2013, said Gross, who is based in Newport Beach, California.

Total Return

The $285.6 billion Pimco Total Return Fund has handed investors a 7.7% gain in the past year, ranking in the 93rd percentile among its peers, according to data compiled by Bloomberg. It has lost 0.1 percent in 2013. Pimco is a unit of Munich-based insurer Allianz SE.

Gross boosted holdings of Treasuries in the fund to 30% in January from 26% in December, according to the company’s website. Investors should buy five-year Treasuries and avoid longer-term bonds, which reflect future inflation, he wrote on Twitter on Feb. 8.

Discussions among policy makers about changes in stimulus prompted some concern that “this could hamper economic growth, so risk aversion is back,” said Ralf Umlauf, head of floor research at Landesbank Hessen-Thueringen in Frankfurt. Still it was “clearly in the minutes that the economy was weak in the winter quarter, and there’s no inflation pressure, so economically there’s no reason for the Fed to cut back soon,” he said.

The 10-year yield will probably climb to 2.20% by year-end, he said.

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