Bill Gross: What the Fed is Thinking

Posted by Ian Cooper - Friday, October 8th, 2010


Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., said the September employment report signals that the Federal Reserve will provide more quantitative easing.

The central bank will likely buy $100 billion in government securities a month to keep borrowing costs down, Gross said in a radio interview today on "Bloomberg Surveillance" with Tom Keene. The Fed may buy $1.2 trillion in Treasuries, he said.

Employers cut staffing by 95,000 workers after a revised 57,000 decrease in August, Labor Department figures in Washington showed today. The median estimate of economists surveyed by Bloomberg News called for a 5,000 drop. The unemployment rate unexpectedly held at 9.6 percent.

Investors should focus on 5-, 6- and -7 year Treasuries with shorter-maturity debt offering little value, Gross said.

Gross reduced the $252 billion Total Return Fund's investment in government-related debt to 36 percent of assets in August, from 54 percent the previous month, according to the latest available data on the website of Newport Beach, California-based Pimco. That equaled the lowest amount since April. The fund also boosted mortgage debt to 21 percent from 18 percent, the most since September 2009. Pimco doesn't comment directly on monthly changes in portfolio holdings.

The Total Return Fund has returned 11 percent in the past 12 months, beating 82 percent of its peers, according to data compiled by Bloomberg. It gained 1.8 percent over the past month, a performance superior to 80 percent of competitors. Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.1 trillion of assets as of June 30.

Pimco's U.S. government-related debt category can include conventional and inflation-linked Treasuries, agency debt, interest-rate derivatives, Treasury futures and options and bank debt backed by the Federal Deposit Insurance Corp., according to the firm's website.


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