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News & ResearchFinal Thoughts On US Treasuries

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Bill Gross, the co-Chief Investment Officer of Pimco, and manager of the world's largest bond funds, has weighed in on recent central bank action with a Tweet.

He said via Pimco's Twitter account Monday night: "Central banks are where bad bonds go to die." 

His comments come just a week after Pimco revealed that it had pared back holdings of US government bonds in Gross's flagship bond fund to just 21% at the end of August from 33 percent at the end of July.

From my viewpoint, the way I see things is this:

1. You can now lock into a projected negative real return (where the yield from the bond is less than inflaton) by buying US Treasuries maturing at any time up to 2, 5, 7 or 10 years;

2. Or a zero real return for 20 years if you like;

3. One major credit rating agency (S&P) has downgraded US Treasuries and the other (Moody's) has said it is inclined to follow suit;

4. The US dollar has now lost a major element in maintaining its ability to remain strong against other currencies - monetary 'tightness' - as the latest Quantatitive Easing programme is unlimited in time and scope. 

... By the way ... a weak dollar, increased money in circulation, inflation and negative real returns in the bond market have all, historically, been good for the price of gold. 

 

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Sunday September 23, 2012 by Robin Newbould