Gross’s Trade Sours as Bonds Lose Faith in Fed Guidance

Bond investors are losing confidence in the Federal Reserve’s pledge to keep benchmark interest rates at about zero into 2015 as the U.S. economy accelerates.

Concern the Fed will increase its target rate for overnight loans between banks next year is showing up in wider price swings for shorter-term securities. Volatility in five-year Treasuries rose above 10-year notes for the first time since 2011 and yields on two-year notes more than doubled in the past four months. Bill Gross, who manages the world’s biggest bond fund at Pacific Investment Management Co., reiterated today his recommendation to buy debt with short maturities.