PIMCO: Treasuries reflect likelihood of recession

NEW YORK Fri Aug 19, 2011 4:06pm EDT

William Gross, Manager of the world's biggest bond fund at Pacific Investment Management Co. (PIMCO) participates in the Obama administration's Conference on the Future of Housing Finance in the Cash Room of the Treasury Building in Washington, August 17, 2010. REUTERS/Jason Reed

William Gross, Manager of the world's biggest bond fund at Pacific Investment Management Co. (PIMCO) participates in the Obama administration's Conference on the Future of Housing Finance in the Cash Room of the Treasury Building in Washington, August 17, 2010.

Credit: Reuters/Jason Reed

Related Topics

NEW YORK (Reuters) - Bill Gross, manager of the world's largest bond fund, said on Friday the decline in Treasury yields to 60-year lows reflect a high probability of recession in the United States.

Gross, the co-chief investment officer at Pacific Investment Management Co., which oversees $1.2 trillion, also told Reuters Insider television the U.S. is running out of monetary and fiscal policy options.

"It is increasingly apparent to us that policy options are limited and that economic growth is slowing down," said Gross said.

Thursday, Morgan Stanley warned in a research report the United States and euro zone are "dangerously close to recession," joining a number of firms that have slashed forecasts for global growth in the second half of the year. Not only are economists and investors bracing for a slowdown in the U.S., they are concerned about a deceleration in China's growth rate to persistent sovereign-debt turmoil in Europe.

Morgan Stanley cut its global GDP forecast to 3.9 percent growth from 4.2 percent for 2011, and to 3.8 percent from 4.5 percent for 2012.

"There's no doubt that (U.S.) growth from the standpoint of employment or unemployment and growth from the standpoint of corporate profits is definitely a risk -- whether or not we see a positive 1 percent real GDP number I think is besides the point."

Gross said low Treasury yields are flashing recessionary conditions.

"They certainly reflect, in terms of their yields, not only a potential for a recession but the almost high probability of recession and the result of lowering of inflation -- that is key."

On Thursday, the yield on the benchmark 10-year U.S. Treasury note dropped below 2 percent to 1.98 percent. Friday, the 10-year yield stood around 2.08 percent.

In May, Gross told Reuters the only way he would purchase Treasuries again is if the United States heads into another recession.

Gross, who manages the $245 billion Total Return Fund, reiterated that sentiment on Friday: "I don't think there is any value there unless you see a recession."

For more from the Interview, please click on insider.thomsonreuters.com/

(Reporting by Daniel Burns, Burton Frierson and Jennifer Ablan; Editing by Neil Stempleman)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (28)
russdward357 wrote:
That’s ridiculous. The White House has repeatedly said that this won’t happen and USAPragmatist, Ginchinchili, and others here constantly reassure us as to their integrity.

Aug 19, 2011 2:09pm EDT  --  Report as abuse
txgadfly wrote:
For those of you waiting with yearning for a return of Republican domination of Government, perhaps you should recall that Obama was inaugurated in January of 2009, two months before the lowest point of this current “recession” / “depression” / “pause” in March 2009. Or at least the lowest so far. Sorry, but none of these politicians is mounted on a white horse.

Aug 19, 2011 2:33pm EDT  --  Report as abuse
ginchinchili wrote:
In order to even appear that you’re making sense, you really should read the articles before commenting. I don’t recall reassuring anyone about the integrity of Treasuries (?), if that’s even what you’re talking about. (It’s not clear.) Though I do think the downgrade was unwarranted. However, I can certainly understand S&P’s reasoning about the Tea Party’s intransigence creating a condition of instability and sense of unreliability in the US government’s ability to get anything done. Sure, Treasuries are safe.

Aug 19, 2011 2:40pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.