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Singapore - Bond guru Bill Gross says Janet Yellen is overly concerned about inflation, and that will hurt the world’s biggest debt market.
Fed Chair Yellen raised the benchmark US interest rate on Wednesday and said policy makers were confident inflation would accelerate toward their 2% target over the medium term. US consumer-price growth has been stuck near zero all year. Gross, the former manager of the world’s biggest bond fund who’s now at Janus Capital Group, said Yellen needs to recognise the fact that costs are going to stay in check.
“She refuses to acknowledge it,” Gross, who is based in Newport Beach, said in an interview on Wednesday in the US. “Treasuries are attractive. But they can’t be that attractive if Janet Yellen continues to insist” inflation will get to 2% shortly, he said.
Treasuries fell on Wednesday after the Fed announcement and climbed back on Thursday in Asian trading. The 10-year note yield declined three basis points to 2.26% as of 1:12 pm in Tokyo, according to Bloomberg Bond Trader data. The 2.25% note maturing in November 2025 rose 10/32, or $3.13 per $1 000 face amount, to 99 7/8.
US government securities have returned 0.8% this year, with the gain slowing from 6.2% in 2014, according to Bloomberg World Bond Indexes.
The rate increase will help financial markets function more smoothly, said Rick Rieder, chief investment officer of fundamental fixed income at BlackRock, the world’s largest money manager with $4.5 trillion in assets.
“The Fed has made the right move for the economy and markets,” Rieder, who is based in New York, wrote in a report. “Both the economy and markets benefit from greater certainty and clarity over the path of interest rates, and uncertainty over that policy path in the past year has generated a considerable amount of market turmoil.”
Investor demand for a defence against rising costs will be tested on Thursday when the US sells $16bn of five-year Treasury Inflation Protected Securities. Buyers at the previous sale in August bid for 2.6 times the amount available, matching the average for the past five years.
Gross says Yellen isn’t giving enough emphasis to Japan, commodity prices and European Central Bank policy, which are all helping keep inflation in check. Japan and Europe are both buying bonds in their regions to try to stave off deflation. The Bloomberg Commodity Index dropped to a 16-year low on Thursday.
“The Fed basically is living in an old age, as opposed to a new age: a new age that’s reflective of high leverage, it’s reflective of globalisation, reflective of factors in terms of demographics that are pushing down inflation,” Gross said.
