Home ListingJuly 22, 2013

PIMCO’s Bill Gross: QE Tightening Won’t Happen until 2016

<em>Gross takes to social networking site Twitter to reassure investors QE tapering is a long way off.</em>

Reported by Featured Author

(July 22, 2013) — PIMCO founder Bill Gross took to Twitter late on Sunday 21, 2013, to tell investors the Federal Reserve was unlikely to turn the monetary easing taps off until 2016.

Gross, who also manages PIMCO’s $268 billion Total Return Fund, wrote: “So bonds come out of their coffin & it’s not even Halloween. #Bernanke says follow policy rate & we agree. 2016 tightening @ earliest.”

The colorful fund manager often takes to the social networking site to issue his thoughts on the issues of the day. Last week he warned followers after Detroit’s fall into bankruptcy that “Mo Town could be Yo Town”.

And on 17 July he told investors: “Focus on the policy rate…Focus on the policy rate…Focus on the policy rate. Buy 5-7 year #Treasuries.”

After initially spooking the markets by admitting that the US’s quantitative easing program was potentially going have to be reined in at some point, Fed Chairman Ben Bernanke helped treasuries reach their biggest two-week gain in almost a year after saying the central bank wouldn’t slow its monthly bond-buying program unless economic conditions call for it.

Benchmark yields had jumped 17 basis points on June 19 after Bernanke’s initial speech, but treasury 10-year yields fell 0.10 percentage points, to reach 2.48% last week, according to Bloomberg data.

Mohamed El-Erian, PIMCO’s chief executive officer, told Bloomberg the Fed chairman was “relatively dovish” in his outlook on the US economy and monetary policy, and that markets “took the tapering too far” in June.

He also predicted 10-year treasury yields could drop to 2.2% this year.

Reaction to Gross’s statement on Twitter was mixed. While the original tweet was retweeted several times, many more critical responses were also published, chastising him for “spinning” the news.

The topic has also been a popular one for other fund managers. Taking the opposite tack, Nick Gartside, international CIO of fixed income at JP Morgan Asset Management spoke for many managers when he wrote in a note on July 22: “Despite the tepid economic backdrop, tapering of bond purchases looks increasingly likely in the US in September.”