Bill Gross got it right when he recommended short-maturity Treasuries this week.
“Not braggin' but what did we tell you,” Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., wrote on Twitter Wednesday.
PIMCO (@PIMCO) September 16, 2013
The difference between five- and 30-year yields widened to as much as 2.38 percentage points today, the most in almost six months. Gross wrote on Twitter on Sept. 15 that investors would demand more yield to own long bonds versus five-year notes after Lawrence Summers quit the race to head the Federal Reserve. The former Treasury secretary's decision ended speculation that he would undo the central bank's policies aimed at holding down borrowing costs.
The Fed unexpectedly refrained from reducing its $85 billion pace of monthly bond buying yesterday, saying it needs more evidence of lasting improvement in the economy. Futures contracts indicate investors are betting policy makers will wait longer before raising their target for overnight lending between banks, benefiting short-term Treasuries, those that are most sensitive what the central bank does with its benchmark.
Vice Chairman Janet Yellen, a supporter of Bernanke's policies, is the top candidate to succeed him, according to people familiar with the process.
Summers's decision to withdraw marks the beginning of the Yellen Fed, Gross said in his Twitter post Wednesday. Traders will have a “frontend friendly” market for a long time, he wrote, referring to the shortest Treasury maturities.
Gross' $251.1 billion Total Return Fund has fallen 2.5 percent this year, underperforming about two-thirds of its peers, according to data compiled by Bloomberg. During the past five years, it has gained an average of 7.5 percent annually, ranking in the 89th percentile.
Pimco, based in Newport Beach, California-based company is a unit of Munich-based insurer Allianz SE.
The Fed left unchanged its outlook that its target interest rate will remain near zero “at least as long as” unemployment exceeds 6.5%, so long as the outlook for inflation is no higher than 2.5%, according to a statement after its two- day meeting concluded yesterday.
Unemployment was 7.3% in August, and the central bank's preferred measure of cost increases in the economy was at 1.4 percent in July. The Fed has kept the target for its benchmark in a range of zero to 0.25 percent since 2008.