Gross, Gundlach take opposite sides on Fed's next step

NEW YORK Wed Aug 29, 2012 1:03pm EDT

NEW YORK Aug 29 (Reuters) - Two of the world's leading bond fund managers, Bill Gross and Jeffrey Gundlach, have taken opposite stances on whether Federal Reserve chairman Ben Bernanke will hint at extending the U.S. central bank's bond-buying program during his speech in Jackson Hole, Wyoming this Friday.

Gross, founder and co-chief investment officer of bond giant PIMCO, told CNBC on Wednesday that the announcement could come at the closely watched Jackson Hole annual global central banking conference, led by the Fed, which begins Friday.

"I think either at Jackson Hole or two weeks later, at the next Fed meeting, that we're going to see policies where checks will be written and Fed balance sheets expanded," Gross said.

For his part, Gundlach, chief investment officer and chief executive officer of DoubleLine Capital, took the opposite stance and told Reuters he does not expect another round of major stimulus soon from the Fed.

"An actual massive bond buying program could take the 10-year down to pretty much as low as the Fed wants it. I don't see that in the near term, however," Gundlach said on Tuesday.

Gross, whose Pacific Investment Management Co. has $1.82 trillion in assets, also said that Bernanke might hint at a policy of nominal GDP targeting.

Gross cautioned that the speech could be a "snoozer" if Bernanke reiterates points made in press conferences about what has occurred since 2008 and the switch from monetary to fiscal policy.

On August 23, Gross told CNBC that another round of bond-buying or quantitative easing- known as QE3- was "almost a done deal" given the Fed's stated goal of achieving sustainable growth, which the U.S. economy lacks on account of high unemployment and low GDP growth.

Regarding Europe, Gross said that European Central Bank President Mario Draghi is "in a little bit of a bind" given the uncertainty of whether a German constitutional court will uphold the European Stability Mechanism rescue fund on September 12.

Gundlach, whose firm has more than $40 billion in assets, also said that his view stated in a July 12 webcast that the 10-year Treasury yield was nearing a record low has not changed.

"I doubt the low in yield of 1.39 percent reached about a week after this statement will be breached to the down side based on QE3/Jackson Hole 'excitement'," Gundlach added.

The 10-year Treasury yield fell to a record low of 1.39 percent on July 24 on fears surrounding the debt levels of Spain and Greece and weak U.S. manufacturing data.

On Wednesday, the 10-year yield stood at 1.66 percent.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.