PIMCO’s Bill Gross is not impressed with total returns for the 10-year U.S. Treasury note.
Gross tweeted on Monday about Federal Reserve Chairman Ben Bernanke’s comments on current monetary policy at a Fed research conference on Friday.
Bernanke warned that a premature exit from the Fed’s program of asset purchases could actually extend the period of low long-term rates. Those remarks came after two days of testimony to Congress ended Feb. 27 in which Bernanke reaffirmed his support for the Fed’s current bond-buying program. Read more: Bernanke says hasty end to easing could backfire.
Bernanke explained that long-term interest rates are composed of expected inflation, expected real short-term rates and a term premium. The low expectations for inflation and real short-term interest rates are fueled by central-bank mandates and the weak recovery of the so-called advanced economies, respectively.
“This weakness, all else being equal, dictates that monetary policy must remain accommodative if it is to support the recovery and reduce disinflationary risks,” said Bernanke.
Gross, who runs the world’s largest bond fund, said in December his bond picks are mostly outside of the Treasury market. Read more: Bill Gross, others look past Treasurys for 2013
The Total Return Fund PTTAX 0.00% held 26% in Treasury debt as of Dec. 31, an increase from the 20% it held at the end of September, according to PIMCO’s website.
Gross has been known to take the other side of the Fed trade in the Treasury market. He bet that there wouldn’t be a Treasury rally in 2011, only to watch as yields fell 147 basis points that year, pushing prices higher. Gross’s Total Return Fund performed poorly among its peers in 2011 and faced redemptions for the first year since the fund began in 1987.