The Federal Reserve’s decision to buy Treasuries and keep interest rates low will support “risk assets” without bringing down unemployment, said Anthony Crescenzi at Pacific Investment Management Co.
“Low volatility tends to be good for the interest-rate climate,” said Crescenzi, who is based in Newport Beach, California at Pimco, manager of the world’s biggest bond fund. “It does push investors out the risk spectrum generally. That tends to be good for risk assets.”
The Fed said yesterday it will reinvest principal payments on its mortgage holdings into longer-maturity U.S. debt, its first attempt to bolster the slowing economy in more than a year. The central bank repeated its pledge to hold its benchmark rate at a record low for an “extended period.” The announcement came after a Labor Department report Aug. 6 showed the U.S. lost jobs for a second month in July.
Those jobs “won’t be recovered easily, certainly not by adding a couple hundred billion dollars into the banking system,” Crescenzi said in an interview on Bloomberg Television.
Government policy should encourage investment rather than consumption, Crescenzi wrote in an e-mail to clients after the Fed announcement. The U.S. should also build on programs to increase exports, he said.
MSCI’s World Index of shares dropped 0.6 percent as of 9:37 a.m. in London, falling for a second day. The Stoxx Europe 600 descended 0.8 percent.
The yield on the benchmark 10-year note declined four basis points to 2.73 percent, according to BGCantor Market Data. The 3.5 percent security due May 2020 gained 10/32, or $3.13 per $1,000 face amount, to 106 18/32. The rate earlier touched 2.71 percent, the lowest since April 2009, according to data compiled by Bloomberg.
“The pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Federal Open Market Committee said in a statement in Washington. “To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level.”
The central bank said in a separate statement that it will announce a purchasing schedule today and that its buying will be concentrated “in the two- to 10-year sector” of the maturity spectrum, though it will also buy other maturities as well as Treasury Inflation Protected Securities.
The Fed bought $300 billion of Treasuries between March and October 2009 to bring down borrowing costs. It has kept its benchmark in a range of zero to 0.25 percent since December 2008.
Bill Gross, who runs the record $239 billion Pimco Total Return Fund, raised his holdings of U.S. government-related debt in June to the highest level in eight months, according to the company’s website.
The fund returned 13.6 percent in the past year, beating 70 percent of its peers, according to data compiled by Bloomberg.
Pimco, which managed more than $1.1 trillion of assets as of June 30, according to its website, is a unit of Munich-based insurer Allianz SE.