Pacific Investment Management Co.'s Bill Gross said he expects the Federal Reserve won't tighten monetary policy until 2016 at the earliest.
Treasuries had their biggest two-week gain in almost a year as Federal Reserve Chairman Ben S. Bernanke said the central bank wouldn't slow its monthly bond-buying program unless economic conditions warrant.
“So bonds come out of their coffin & it's not even Halloween,” Gross, who manages Pimco's $268 billion Total Return Fund, said in the posting on Twitter. “Bernanke says follow policy rate & we agree.”
Ten-year yields retreated from the 2013 high reached July 8 as Bernanke told congressional panels last week it was “way too early to make any judgment” about whether the central bank, the biggest buyer of Treasuries, will starting cutting back in September. The proportion of U.S. government debt in Total Return, the world's biggest bond fund, rose to 38 percent in June, from 37 percent in May, according to data on Newport Beach, California-based Pimco's website.
“The chairman went out of his way to discourage investors from assuming Fed tapering has been largely decided, which has calmed bond buyers down,” said Christopher Sullivan, who oversees $2.1 billion as chief investment officer at United Nations Federal Credit Union in New York. “The path of easing will clearly be data dependent, and every report will be intensely scrutinized as people are looking for any indication of whether we are on a path of policy adjustment or not.”
Treasury 10-year yields fell 10 basis points, or 0.10 percentage point, to 2.48 percent last week in New York, Bloomberg Bond Trader data showed. The price of the 1.75 percent note due in May 2023 rose 26/32, or $8.13 cents per $1,000 face amount, to 93 20/32.
That drop, combined with 16 basis-point fall in the previous five days, was the biggest back-to-back decline since the period ended Aug. 31. The yield touched an almost two-year high of 2.75 percent on July 8.
The Fed chairman was “relatively dovish” in his outlook on the U.S. economy and monetary policy, according to Mohamed El-Erian, Pimco's chief executive officer. Markets “took the tapering too far” and 10-year Treasury yields may drop to 2.2 percent this year, El-Erian, who is also co-chief investment officer with Pimco founder Gross, said in a July 17 interview.
Benchmark yields jumped 17 basis points on June 19 after Bernanke said the central bank, the largest buyer of U.S. government debt, may start dialing down its unprecedented bond-buying program this year and end it entirely in mid-2014 if the economy finally achieves sustainable growth.
Bernanke told the Senate Banking Committee last week that tighter financial conditions as a result of rising yields over the past two months are “unwelcome.”
The Federal Open Market Committee has kept the benchmark interest-rate target at a record low zero to 0.25 percent since 2008 to support the economy. Investors see a 40 percent chance policy makers will lift the federal funds rate to 0.5 percent or higher by December 2014, compared with 49 percent odds a week earlier, data compiled by Bloomberg show. Policy makers next meet July 30-31.
Gross also added to holdings of mortgage securities in June, the fund's second-largest holdings. The proportion rose to 36 percent last month, from 34 percent in May.
Over the past five years, the Total Return Fund has returned 7.7 percent, outperforming more than 90 percent of competitors. It gained 0.7 percent over the past year, placing it in the 71th percentile of its category, according to data compiled by Bloomberg. Pimco, a unit of the Munich-based insurer Allianz SE (ALV), managed $2.04 trillion in assets as of March 31.