Tags: pimco | gross | fiscal | cliff

Pimco's Gross Sees 50% Chance of US Plunging Off Cliff

Monday, 24 Dec 2012 11:22 AM

 

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Treasury 10-year notes were little changed after rising on Dec. 21 amid concern U.S. budget talks will fail to avert spending cuts and tax increases that threaten to push the U.S. economy into a recession.

Two-year yields fell as lawmakers including Senator Joseph Lieberman said they were losing confidence that Congress and President Barack Obama can reach a deal within a week to avoid the automatic measures taking effect.

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the fiscal cliff has more than a 50 percent probability.

“I thought the fiscal cliff would be resolved much earlier,” said Satoshi Okagawa, a senior global-markets analyst in Singapore at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-biggest bank by market value. “The fiscal cliff is the dominant theme for the Treasurys market now.”

The yield on the benchmark 10-year Treasurys was at 1.77 percent as of 9:25 a.m. London time after sliding three basis points on Dec. 21. The price of the 1.625 percent security due in November 2022 was at 98 23/32, according to Bloomberg Bond Trader prices. The two-year note yield fell one basis point to 0.26 percent.

Trading in Treasurys ends at 2 p.m. New York time today and will remain closed Dec. 25, according to the website of the Securities Industry and Financial Markets Association.

A vote on House Speaker John Boehner’s plan to allow higher tax rates on annual income above $1 million was canceled because it didn’t have sufficient support from his own Republican party, he said in a statement on Dec. 20.

Budget Measures

“For the first time I feel it’s more likely that we will go off the cliff,” Lieberman, a retiring Connecticut independent, said Sunday on CNN’s “State of the Union” program.

The Senate will reconvene on Dec. 27 to discuss budget measures. The fiscal cliff refers to the more than $600 billion of austerity measures set to take effect in January.

“The cliff is better than a 50 percent probability,” Gross, who runs the $285 billion Total Return Fund at Newport Beach, California-based Pimco, wrote Sunday in a Twitter post. A dysfunctional Washington is “bad for risk assets,” he wrote.

Treasurys have returned 2.1 percent this year on an annualized basis, set for the worst performance since a 3.7 percent loss in 2009, according to Bank of America Merrill Lynch. The Standard & Poor’s 500 Index of U.S. shares has returned 17 percent on a similar basis, including reinvested dividends, amid signs the U.S. economy is improving.

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