Pimco's Gross: Mortgage-Backed Securities Good Bet Now

Monday, 19 Dec 2011 07:43 AM

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Pimco CIO Bill Gross says now is a good time to add mortgage-backed securities to your portfolio.

“If the EU economies and the euro basically go down, the dollar goes up," Gross told CNBC. "It’s hard to see the Fed raising rates and thus reinforcing a higher and higher dollar making U.S. industries less and less competitive."

Moreover, Gross says, "next year the expectation is that if there is a QE3, it will be mortgage-directed, and it would pay holders to load up on mortgages before the Fed does."
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Gross believes that the Federal Reserve and other central banks such as the European Central Bank and the Bank of England will keep interest rates low for rates for three, four or five years.

gross200.jpg
Pimco's Bill Gross
(Pimco file photo)
However, Gross doesn't believe the European Central Bank will become the "lender of last resort" to struggling European nations anytime soon.

"We've waited for the ECB for a long time," says Gross, and the bank has made it clear it is "a central banker for banks, not a central bankers for countries" and would prefer that individual countries solve their problems through the European Union.

"They've been totally out of the marketplace," Gross says. However, if there is an additional crisis — such as in Italy and Spain, which he considers vulnerable to insolvency —then "perhaps" the central bank might step in to buy sovereign debt.

Business Week reports that Fitch Ratings has affirmed France’s AAA rating and placed Spain, Italy, Belgium, Slovenia, Ireland and Cyprus on a “Rating Watch Negative” review, which it expects to complete by the end of January.

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