Bill Gross to BTV: 99.9% sure Yellen is next fed; US will avoid ‘catastrophic’ default
PIMCO’s Bill Gross joined Bloomberg Television’s Trish Regan and Adam Johnson on “Street Smart” today and said, U.S. will avoid a ‘catastrophic’ default on Treasury securities if lawmakers fail to extend the debt limit on the nation’s debt. Gross went on to say that a default will be
source: Bloomberg Television
“What we have done is to buy and hold treasuries at the front end of the curve. What we think is the most defendable aspect of policy going forward, whether it is the debt ceiling, the CR resolution, the Fed going forward, is the a fact that the Fed probably will stay put. In terms of 25 basis points, not talking taper here stay put in terms of policy rate for the next two or three years. What the market is interpreting is that the Fed will raise interest rates by 100 basis rates by December of 2015 and by another hundred by 2016. We do not believe that. We said bet against it. What does that mean? It means by front end treasuries by 3,4,5 year treasuries that incorporate the mispricing in terms of fed policy rates going forward. We think, when Janet Yellen and I say when Janet Yellen is appointed… I cannot confirm it. I can give you 99.9-percent pure that she will be head of the Fed come six months from now. If she is, then she is a main proponent of forward guidance. She and Michael Woodford basically suggested that after tapper that forward guidance is the thing. What we believe at PIMCO is forward guidance in terms of keeping the policy rate low under certain conditions that probably will not be met. The policy rate is the key. You should buy treasuries yes but on the front end. Don’t by 30s, don’t by 10s because these are inflation incentive. Buy something that the Federal Reserve is going to guarantee for the next several years.