PIMCO founder and co-CIO Bill Gross spoke with Bloomberg Television‘s Margaret Brennan Wednesday, telling her the Fed will likely shift focus to mortgage securities to keep borrowing rates low when Operation Twist ends in June.
On Gross’s view that we may see a sign from Bernanke in April that QE3 will be rolled out:
“I think [Federal Reserve Chairman Ben Bernanke] is very satisfied…I think the Fed is outcomes-oriented. They want an outcome in terms of a higher stock market, in terms of housing starts and lower unemployment. What [Bernanke] said on Monday, in terms of the employment, he suggested that up until now, we’ve done very well in terms of reducing unemployment but it’ll be tougher going forward if only because of structural impediments that he outlined. Going forward, he’s looking at jobs, at unemployment and the housing markets.”
On the tool that Gross thinks the Fed might deploy in April:
“I have a sense that they’ll continue with the Operation Twist, but not necessarily in terms of buying longer-term bonds and selling shorter dated Treasuries. I think that’s basically been played out and the pension market itself in terms of liability structure has been damaged to some extent by lower 30-year yields. I think [Bernanke] will try to do is Twist in the mortgage market. Basically, buy current coupon mortgages in agency spaces and then basically twist by repo-ing out the Treasuries that they currently own in short-term space. So, you know, a twist on another Twist I suppose, going forward.”
On the ticker change for PIMCO’s new ETF (to BOND):
“It is easy to recognize. I told my wife about it last night and in the middle of the night she started saying something about James. I hope she was referring to the ETF but you get the point… It’s more easily recognizable. In this business you want to go with a ticker and a sticker that people can recognize and pass on to their neighbors.”
On Gross’s warnings to investors about management fees: