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PIMCO's Gross says Fed won't raise rates significantly

Pacific Investment Management (PIMCO) founder and co-chief investment officer Bill Gross plays golf on the first hole at Pebble Beach Golf L
Pacific Investment Management (PIMCO) founder and co-chief investment officer Bill Gross plays golf on the first hole at Pebble Beach Golf L

By Sam Forgione

NEW YORK (Reuters) - Bill Gross, co-chief investment officer of PIMCO and manager of the world's largest mutual fund, said Friday the Federal Reserve is not likely to raise interest rates anytime soon and that he sees intermediate-term Treasuries as an attractive investment opportunity.

"We don't see the Fed raising rates in a meaningful way for at least the next few years," said Gross, also a founder of Pacific Investment Management Co., in an article posted on the firm's website.

In the article, entitled "Which Way for Bonds? Mapping a Path Forward," Gross said the U.S. unemployment rate at 7.6 percent remains too high for the Fed to quickly end its easy money policies.

Gross is the latest big money manager to say markets have overreacted to speculation that the Fed is going to stop pulling back on its monthly purchases of $85 billion in U.S. Treasuries and mortgage securities.

Gross, whose flagship PIMCO Total Return Fund has roughly$285.2 billion in assets, said in the article on Friday that he is reducing risk in the fund in response to economic uncertainty and the negative effects of global stimulus measures on economic growth. The PIMCO Total Return Fund is down 1.23 percent this year, according to the firm's website.

Gross said that intermediate-term Treasuries are currently attractive at yields of around 2 percent. He decreased his exposure to Treasury debt in his PIMCO Total Return Fund to 37 percent in May from 39 percent in April, however, according to data on the company's website.

The benchmark 10-year Treasury yield was at 2.13 percent at the close of trading on Friday. The yield has surged ever since May 22, when Fed Chairman Ben Bernanke suggested during testimony on Capitol Hill that the bond purchases could be slowing or coming to an end in the near future.

Gross also said that PIMCO is avoiding bonds with longer duration, reducing exposure to the debt of companies and sectors that are vulnerable to economic risk, and increasing exposure to stronger economies such as the U.S., Brazil, Mexico, and Australia.

The Newport Beach, California-based PIMCO, a unit of European financial services company Allianz SE , had $2.04 trillion in assets at the end of March.

Gross, who said last month that the 31-year bull market in fixed income ended on April 29, said in the latest article that the bond market is still not nearing a bear market.

"While we are not likely to see a repeat of that type of bull market any time soon, we also do not believe we are at the beginning of a bear market for bonds," Gross said.

(Reporting by Sam Forgione; Editing by Kenneth Barry)

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