Following the comments on the bond bubble, Bill Gross, the manager of the largest bond fund PIMCO, has admitted the mistake of betting against the price of U.S. government debt.
Dated back January when the 10-year Treasury was 3.5%, Bill has warned about the risk of rising inflation that increases rates which make the Treasury reduce in value. However, the rate kept being reduced from 3.5% to 2.8%, then 2.6% and now even below 2%, the lowest in 61 years. He admitted: “Do I wish I had more Treasury. Yeah, that’s pretty obvious. I get that it was my/our mistake in thinking that the U.S. economy can chug along at 2% real growth rates. It doesn’t look like it can.”
The Fed is committed to keeping the rates unchanged until two years later into 2013. Bill said: “We’ve moderated based on the outlook for the US economy, based on what Bernanke has done at the Fed in the last month. Freezing rates for two years was a pretty significant statement in terms of the vulnerability of Treasuries to go down in price and up in yield."
Three months before, Bill told Reuters that “Treasury yields are currently yielding substantially less than historical averages when compared with inflation. Perhaps the only justification for a further rally would be weak economic growth or a future recession that substantially lowered inflation and inflationary expectations.” He said that the only reason that he would buy into Treasuries, reverse his “short” position, is if the U.S. was heading into another recession.
According to a research group named Lipper, The Total Return Fund is making 3.29% right now, underperforming the market, whereas the benchmark is returning 4.55% for the year so far. And Bill Gross has begun to buy government debt as well as related derivatives and related securities in recent months.
The link to the article of CNBC is here:
Pimco's Gross Regrets 'Mistake' on U.S. Debt Call
Dated back January when the 10-year Treasury was 3.5%, Bill has warned about the risk of rising inflation that increases rates which make the Treasury reduce in value. However, the rate kept being reduced from 3.5% to 2.8%, then 2.6% and now even below 2%, the lowest in 61 years. He admitted: “Do I wish I had more Treasury. Yeah, that’s pretty obvious. I get that it was my/our mistake in thinking that the U.S. economy can chug along at 2% real growth rates. It doesn’t look like it can.”
The Fed is committed to keeping the rates unchanged until two years later into 2013. Bill said: “We’ve moderated based on the outlook for the US economy, based on what Bernanke has done at the Fed in the last month. Freezing rates for two years was a pretty significant statement in terms of the vulnerability of Treasuries to go down in price and up in yield."
Three months before, Bill told Reuters that “Treasury yields are currently yielding substantially less than historical averages when compared with inflation. Perhaps the only justification for a further rally would be weak economic growth or a future recession that substantially lowered inflation and inflationary expectations.” He said that the only reason that he would buy into Treasuries, reverse his “short” position, is if the U.S. was heading into another recession.
According to a research group named Lipper, The Total Return Fund is making 3.29% right now, underperforming the market, whereas the benchmark is returning 4.55% for the year so far. And Bill Gross has begun to buy government debt as well as related derivatives and related securities in recent months.
The link to the article of CNBC is here:
Pimco's Gross Regrets 'Mistake' on U.S. Debt Call
