Pimco portfolio manager Tony Crescenzi disagrees with those who say a bubble has formed in the bond market.
He cites four reasons:
• The first is demographic. “Can you imagine the older population wanting to go down the capital structure — take more risk? We can’t,” he tells CNBC.
• Second, having experienced two major financial shocks in the last 13 years — in 2000 and 2008 — investors are understandably cautious, Crescenzi says. “These emotions stay with us and will probably do so for a generation.” Investors are big on safety now, he says. “The world of safe assets is shrinking. That leaves more money for bonds.”
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• Third, “the Fed is sitting like an elephant on an ant, suppressing interest rates,” Crescenzi said.
• And finally, on the corporate side, companies’ massive cash holdings make their bonds a safe investment, as they have enough cash to meet their obligations, he says.
“To call it a bubble requires a change in these things.”
The 10-year Treasury yield stood at 1.85 percent Friday morning, up from July’s record low of 1.38 percent.
Not surprisingly, Crescenzi’s Pimco colleague Bill Gross, manager of the world’s biggest bond mutual fund (Pimco Total Return) agrees.
“I don’t see a lot of risk in bonds,” he tells The New York Times. “The Federal Reserve is buying, and there’s no real risk until the Fed declares the war is over.” The central bank is purchasing $85 billion of Treasurys and mortgage-backed securities a month.
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