Bill Gross: Treasuries' climb this week was misguided

Slow Growth

Economic growth is slow enough to send yields lower, said Chungkeun Oh, who invests in Treasuries for Industrial Bank of Korea in Seoul. Oh said he bought Treasuries earlier this month when the 10-year yield was 2.05%.

“I’m not so confident in the U.S. economy,” he said. “The market data are negative sometimes.”

Ten-year yields will fall to 1.90% by March 31 and then rise to 2.32% by year-end, based on a Bloomberg survey of financial companies with the most recent projections given the heaviest weightings.

The Commerce Department will revise its estimate of gross domestic product in the fourth quarter to 0.5% growth from a 0.1%  contraction, according to a Bloomberg survey of economists before the report on Feb. 28. Orders for durable goods fell in January for the first time since August, a separate report will show Feb. 27, analysts estimate.

Debt Sales

The Treasury is scheduled to sell $35 billion of two-year notes on Feb. 25, the same amount of five-year securities the next day and $29 billion of seven-year securities on Feb. 27.

Indirect bidders, a group that includes foreign central banks, bought 54.5% of the $9 billion of 30-year inflation-indexed securities sold by the Treasury yesterday. That compared with 49.1% in the previous auction. Overall demand fell, with the so-called bid-to-cover over ratio dropping to 2.47 times the amount offered, from 2.82 times.

The securities are intended to provide a hedge against rising prices.

Pimco’s Gross said central bank efforts to spur growth will boost costs in the economy and inflation may quicken to 3% over the next few years. Consumer prices rose 1.6% in January from a year earlier, the Labor Department reported yesterday.

The yield difference between 10-year notes and similar- maturity inflation-linked bonds, a gauge of expectations for consumer prices, was at 2.54 percentage points today, up from 2.45 percentage points on Dec. 31. The average for the past five years is 2.03 percentage points.

Bloomberg News

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