PIMCO CIO Bill Gross today said his firm has sold off roughly half of its Treasury inflation-protected bond holdings over the past two months and has added duration to its overall portfolio since concluding in May that deflationary pressures would triumph over inflationary pressures during the coming years. PIMCO has extended the average duration of its $500 billion in mandates by an average of half a year, or "250 billion duration dollars," Mr. Gross told reporters at the Morningstar investors conference in Chicago.
While the Federal Reserve may continue to boost the federal funds rate to around 3.5%, it may have to reverse course and begin cutting rates again as early as the end of this year, Mr. Gross said. He predicted the yield on the 10-year U.S. treasury bond — currently at 4.1% — could be stuck in a range between 3% and 4.5% over the next few years. More pension funds appear to have reached a similar conclusion and have begun funneling money into U.S. treasuries in order to lock in the current rate above 4%, he said.