Pacific Investment Management Co.’s Bill Gross said the Federal Reserve will remain accommodative with wage growth in the U.S. unchanged in July.
Wages “are not raging,” Gross, manager of the world’s biggest bond fund, said during a radio interview on “Bloomberg Surveillance” with Tom Keene. “American wages on Main Street are Janet Yellen’s number one concern.”
The U.S. added 209,000 jobs last month, following a 298,000 gain in June that was stronger than previously reported, figures from the Labor Department showed today in Washington. The median forecast in a Bloomberg survey of economists called for a 230,000 increase. The jobless rate climbed to 6.2 percent from 6.1 percent in June as more people entered the labor force.
Average hourly earnings were unchanged at $24.45 in July. They were up 2 percent over the past 12 months. The average work week for all employees held at 34.5 hours.
Gross said the stagnant wage growth dovetails with Pimco’s “new neutral” investment thesis for the next three to five years, a scenario characterized by global growth converging toward lower, more stable speeds and interest rates that remain below their pre-crisis equilibrium. The Fed and other central banks “have to stay low for a long, long time,” Gross said during today’s interview.
Global asset markets, showing signs of a “liquidity shortage” are “walking a tight line,” Gross said.
“There is a sense that in the past few days that all asset prices are going down,” Gross said. “I attribute it to Russia and the potential for a global mini trade war and the Argentinian default and that future investors will be leery of investing in emerging markets.”
The $225 billion Total Return Fund (PTTRX) managed by Gross has advanced 3.3 percent this year, beating only 24 percent of comparable funds, Morningstar data show. The fund has been hurt by Gross’s decision to emphasize intermediate-term bonds over longer-dated ones. Five-to-seven Treasuries have returned 2.4 percent this year, according to the Bank of America Merrill Lynch index data, while 30-year Treasuries have returned 15 percent.
Total Return’s performance was hurt last quarter by “an underweight to the long-end of the U.S. yield curve, as longer maturity yields declined,” according to the fund’s quarterly investment report through June 30.
Redemptions have plagued Total Return for 14 straight months, the longest streak on record. Investors have pulled almost $70 billion from the fund since May 2013, when the Fed first hinted it would unwind stimulus measures, sparking concern that rising interest rates would create losses in bond funds.
The Fed, on July 30, decreased the monthly pace of bond purchases to $25 billion, on pace to end the stimulus program by October. It held the benchmark interest-rate target in a range of zero to 0.25 percent, saying slack persists in the labor market even as the economy is picking up.
Fed policy makers led by Yellen said on June 18 that they expect their year-end rate will reach 1.13 percent in 2015 and 2.5 percent in 2016. The benchmark rate will remain below 2 percent until sometime in 2017, Gross said today from Pimco’s headquarters in Newport Beach, California.
With the Fed expected to stay in easing mode for longer “bond yields are appropriately priced,” Gross said. “We are going to depend on income. Is the 10-year note at 2.55 percent attractive? No, but it’s better than nothing.”
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