Wednesday, March 2, 2011

Bill Gross Cuts Treasuries: Yields Are Too Low

Pimco's Bill Gross says yields on Treasuries may be too low to sustain demand for U.S. government debt Pimco manages approximately $1.24T of assets.

And yields are not just a little low. He says Treasury yields are about 150 basis points too low. He makes the estimate from a historical context and when compared with expected nominal gross domestic product growth of 5% (but we are not there yet).

He wrote: “A successful handoff from public to private credit creation has yet to be accomplished,” “That handoff will ultimately will determine the outlook for real growth and the potential reversal in our astronomical deficits and escalating debt levels.”

Mr. Gross reduced the holdings of U.S. government and related debt in Pimco’s $239 billion Total Return Fund to the smallest proportion in two years, cutting them to 12% of assets, from 22% in December.

TLT chart:

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