Tags: pimco | gross | fed | treasury

Pimco’s Gross: Fed Policy Means Treasury Issues ‘Free’ Debt

Thursday, 13 Dec 2012 11:08 AM

 

Share:
  Comment  |
   Contact Us  |
  Print  
|  A   A  
  Copy Shortlink
Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said the Federal Reserve’s latest round of monetary stimulus will enable the Treasury department to issue debt for no cost.

The central bank said Wednesday it will buy $45 billion a month of Treasury securities starting in January, expanding its asset-purchase program, and for the first time linked the outlook for its main interest rate to unemployment and inflation targets. The purchases will add to the $40 billion a month it is buying of mortgage debt.

“What really happens, and this is critically important, is that the Treasury issues bonds and the Fed buys them and then it remits interest to the Treasury,” Gross, who runs the $285 billion Total Return Fund, said in an interview on Bloomberg Television with Betty Liu. “It means the Treasury is issuing debt for free. There are complications. Inflation is one of the complications.”

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Treasurys fell Wednesday after the Fed announced bond-buying plans as traders bet the actions would eventually fuel inflation. Thirty-year Treasury yields reached a five-week high of 2.93 percent today while break-even rates on 30-year inflation-index bonds, a measure of expectations for consumer prices during the life of the securities, climbed to 2.55 percentage points yesterday, the most since Oct. 5.

Inflation, so far, has been held in check and “we are well below 2 percent and the Fed is comforted by that,” Gross said. “But ultimately, if you write checks for free and if it’s costless to finance a fiscal policy that is well into a deficit figure, yes, that’s an inflationary moment to the extent that the private sector gets some animal spirits and takes that bait.”

Pimco’s Total Return Fund gained 11.2 percent during the past year, beating 94 percent of its peers, according to data compiled by Bloomberg. The fund has returned 8.5 percent during five years, outperforming 97 percent of competitors.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

© Copyright 2014 Bloomberg News. All rights reserved.

Share:
  Comment  |
   Contact Us  |
  Print  
  Copy Shortlink
Around the Web
Join the Newsmax Community
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Retype Email:
Country
Zip Code:
 
You May Also Like
Around the Web
Most Commented

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved