Bill Gross, manager of the world’s biggest bond mutual fund, said Federal Reserve Chairman Ben S. Bernanke will go ahead with a plan to reduce the central bank’s unprecedented asset purchases despite a disappointing jobs report.
“I think Bernanke and company are committed to a taper,” Gross, co-founder of Pacific Investment Management Co., said today in a radio interview on “Bloomberg Surveillance” with Tom Keene. “It will be taper lite as opposed to a strong tapering.”
Payrolls in the U.S. climbed less than projected in August after smaller gains the prior two months, indicating companies are being deliberate in their hiring as they wait for a pickup in demand. The gain of 169,000 workers last month followed a revised 104,000 rise in July that was smaller than initially estimated, Labor Department figures showed today in Washington. The median forecast of 96 economists surveyed by Bloomberg called for an August increase of 180,000. Unemployment dropped to 7.3 percent, the lowest since December 2008.
Treasuries rose as investors curbed bets that the Fed will start to reduce its $85 billion monthly pace of bond purchases at its Sept. 17-18 meeting. The benchmark U.S. 10-year yield fell 9 basis points, or 0.09 percentage point, to 2.90 percent at 1:02 p.m. in New York. The yield earlier touched 3.01 percent, breaching 3 percent for the first time since July 2011.
The Fed will probably reduce its assets purchases by $10 billion and focus on Treasury bonds, said Gross, who’s also co-chief investment officer, along with Mohamed El-Erian, of the Newport Beach, California-based firm.
Top bond managers from Gross to Jeffrey Gundlach and Dan Fuss have seen their funds shrink after Bernanke raised the possibility in May that the central bank would begin to scale back bond purchases. Gross’s $251 Pimco Total Return Fund (PTTRX) contracted by more than $41 billion, or 14 percent of its assets, in the past four months through losses and investor withdrawals.
Bond managers are being challenged in ways they never have been, Gross said in the interview. While Pimco is seeing withdrawals from the Total Return fund, investors are adding money to other strategies, such as the Pimco Unconstrained Bond Fund (PUBAX), he said.
Pimco Total Return currently has 10 percent of assets, or about $25 billion, in cash, Gross said.
“There are no great choices for the Fed at this point,” El-Erian said today in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “Today’s number tells you that we’re still in second gear, even though the U.S. can be driven at a much higher speed.”
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