Finally, grown-up speak:
<<PIMCO's Gross says oil, surplus behind T-bond's fall
NEW YORK, Sept 15 (Reuters) - William Gross, managing director of the largest U.S. fixed-income management firm, said on Friday soaring oil costs and views federal budget surpluses may be smaller than expected were factors behind sharp bond market moves this week.
Gross, founder of Pacific Investment Management Co (PIMCO), which manages $250 million in fixed-income assets, also said
mortgage-backed securities offered the best opportunities for income investors.
``Oil prices filter into the economy in terms of higher inflation ultimately,'' Gross told CNBC.
He noted that while the high price of oil has yet to filter into core inflation, as evidenced by Friday's benign government report on August consumer prices, ``ultimately it will, and inflation wreaks havoc on long bonds.''
The 30-year Treasury bond has plunged around two full points in two days, lifting its yield, which moves in the opposite direction, to two month highs near 5.90 percent.
Rumours have swept through bond trading rooms that a large buyside player was a major seller of 30-year bonds. Gross did not discuss his firm's activities.
The 30-year bond's yield this week vaulted above that of 10-year Treasury notes for the first time since January, when government plans to use budget surpluses to reduce its stock of debt pushed yields on long-term debt below those of shorter paper.
Long bonds rallied most of the year as traders bet that they would acquire a scarcity value as the government used surplus funds to buy them back and reduce new debt issuance.
``But with politics entering the equation, politicians spend money, or give it back in the case of the (Republican presidential candidate George W.) Bush proposal, and the expectations at the moment are that the surplus will be less than a few months ago,'' Gross said.
He said he believed the Federal Reserve, which hiked interest rates by 1.75 percentage points from June 1999 to May 2000, would remain on hold for the next six months due to a slowing economy.>> |
