PIMCO CIO Bill Gross thinks the Federal Reserve may have completed its interest rate increases, and the company is focusing its investments on the shorter end of the Treasury curve, Mr. Gross told an audience at the Bond Market Association's annual meeting in New York today.
Uncertainty is high across capital markets, and "during times such as that, it pays to search for areas where you have the highest degree of confidence," Mr. Gross said, adding that "a bet on the front of the U.S. (Treasury yield) curve" is a bet the Fed will stop raising rates around current levels. PIMCO portfolios are shoved to the (short) end of the yield curve to take advantage of relative certainty" that the Fed is done raising interest rates.
On May 10, the Federal Reserve raised the Fed funds rate by 25 basis points to 5%, a level Mr. Gross said could be right to keep inflation in check and the economy growing — although that is "highly uncertain." He noted he also thought the level was right a year ago, at 3%.
The biggest uncertainty for global capital markets is what Japan's central bank will do with interest rates, he said, pointing to forecasts that the short-term rate in Japan could rise by as little as 25 basis points or as much as 300.
In a separate speech, U.S. Treasury Secretary John Snow urged Congress to pass pension reform legislation, calling it "a fundamental issue." He listed transparency of pension plan financial information and the discount rate used to measure plan liabilities as two areas of concern.
"If you have an obligation, you ought to live up to it," he said of pension plans. "That means measuring it the right way and making sure it's transparent. It just doesn't make any sense to systematically mis-measure the liabilities. (Changing) that means using the right discount rate."