Pimco co-founder and co-Chief Investment Officer Bill Gross thinks bonds are still a good bet.
In his most recent letter to investors, Gross was optimistic about treasuries, writing: ”The U.S. economy is not sinking, nor are the majority of global economies. Their markets just had too much risk. In effect, the ship was top-heavy with too little ballast. Guess I should have known, huh?”
Pimco’s fund has been subject to volatility in bond markets recently and pummeled in value while interest rates have ticked up. Gross, though, thinks the bond markets overshot on speculation of quantitative easing. With treasury rates reaching a nearly two-year high of 2.65 percent, he thinks they will settle to the 2.2 percent area, something that would recoup a lot of value for his fund.
When the Fed threatens to cut off quantitative easing, the markets come running to treasuries and bonds to hedge themselves from their own leverage — but, really, they’ve run for cover too soon, he said. With first-quarter GDP growth being revised lower and other economic barriers still looming, Federal Reserve Chairman Ben Bernanke might be forced to keep easing a bit longer.