Bill Gross Warns Of ‘Repression’ In U.S. Treasuries

Bill Gross, managing director of the world’s largest bond portfolio, may reside near his office for Pacific Investment Management Company in Newport Beach, California, but he is still sailing away from U.S. government bonds.

In his investment outlook letter to investors for May, Gross discusses the “immediate threat” that low interest rates in the U.S. pose to investment portfolios. Gross is no bigger fan of U.S. Treasuries today than he was a month ago, when he said he was pulling out of all but a small supply of U.S. Treasuries in PIMCO’s $1.2 trillion bond portfolio. (Read “Bill Gross Shorts Treasuries“) Gross cites an academic paper that refers to the “financial repression” that debt-burdened U.S. and U.K. governments employed in capping interest rates in government bonds in order to reduce the debt to GDP ratio. What worked in the post-WWII era may work again now, but Gross doesn’t want to be around when it does.

As inflation hits U.S. products like gasoline and food, which are excluded from the core measure that the Federal Reserve analyses, indications for job growth and a healthier economy are growing slimmer. “Even if 10-year Treasuries stay where they are at 3.30%, and fed funds close to 0%, savers and financial intermediaries are being shortchanged by both of these yields and everything in between,” Gross writes.

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