September 2, 2011

PIMCO’s Gross: ‘Almost Suicidal’ to Focus on Debt Instead of Growth

Bond chief recommends longer duration maturities to combat weak economy

Governments should be focusing on creating growth rather than reducing debt, PIMCO’s Bill Gross said Friday.

“To [focus on reducing debt] right now is almost suicidal,” he said in an interview with Bloomberg Radio.

Gross also said he favors longer-maturity debt, and sees the Federal Reserve pushing policies that are likely to narrow the difference between short- and long-term borrowing rates as employment growth stagnates.

“We’ve advocated hard duration; that basically means something beyond five years,” Gross, manager of the world’s biggest bond fund, said in the interview. “The front end of the curve, in the U.S. at least, is inert. You have to move out into longer duration, harder duration.”

Gross’ comments come after Friday’s weak employment report, which showed growth in the jobs market to be flat. This bolstered the view that Fed Chairman Ben Bernanke will take additional steps with quantitative easing.

“The central bank will likely extend the maturities of its portfolio by buying five- to 10-year Treasuries while shedding shorter-maturity debt, Gross said, in what has been referred to as ‘Operation Twist’ after a similar program in the 1960s,” according to Bloomberg.

“I don’t know what form it will take and whether you call it a QE, there’s certainly opposition from the hawks in terms of the Fed,” Gross said. “We would stick in the 5- to 10-year area and I think that will be the focus for the Fed in terms of policy change come September.”

As the news service notes, the $245 billion Total Return Fund managed by Gross has lost 0.4% in the past month, underperforming almost 90 percent of its peers. The fund’s 4.07% return this year is worse than about two-thirds of competitors, Bloomberg data shows.

However, Gross has outperformed 98% of his rival funds over the past five years and was named fixed income manager of the decade by research firm Morningstar in 2010.

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