Pacific Investment Management Co.’s Bill Gross said Treasuries are the premier holdings for fixed-income investors with the U.S. economy failing to produce private sector jobs and Europe’s sovereign-debt crisis threatening the region’s banking sector.
“The U.S. is the least dirty shirt,” Gross said during a radio interview today on Bloomberg Surveillance with Tom Keene. “The world is full of dirty shirts in terms of excessive debt, and the United States is one of those countries, but it still remains the reserve currency and still remains the flight to quality haven.”
Gross, Pimco’s co-chief investment officer and manager of the world’s biggest bond fund, said Treasuries in the 5- to 10-year range and 30-year debt has become “the focus for us.” He boosted his fund’s investment in U.S. government-related debt in April to the highest level in five months. The increase came even after Gross said in March that “bonds have seen their best days” during a separate Bloomberg Radio interview.
Treasuries are more attractive with inflation likely to remain subdued for now with the U.S. economy settling into what Pimco has termed the “new normal” of slower growth, heightened government regulation and lower consumption, Gross said.
Employers in the U.S. hired fewer workers in May than forecast, showing a lack of confidence in the recovery that may lead to slower economic growth. The jobless rate fell to 9.7 percent last month, figures from the Labor Department in Washington showed today.
Private Sector Growth
The unemployment rate may rise to 10 percent within the next several months with job growth “anemic,” Gross said.
“The market was assuming that the private sector was coming back, but obviously we’ve seen none of that,” Gross said. “Washington needs to direct jobs and production in areas where world demand exists. That applies to green technology, to the medical arena, and other areas.”
The yield on the benchmark 10-year note dropped 16 basis points, or 0.16 percentage point, to 3.21 percent at 12:32 p.m. in New York, according to BGCantor Market Data. The price of the 3.5 percent security due in May 2020 rose 1 11/32, or $13.44 per $1,000 face amount, to 102 14/32.
The euro dropped below $1.20 for the first time since March 2006 amid speculation the European sovereign-debt crisis may be spreading into the financial system. A Hungarian government spokesman said “it’s no exaggeration to talk about default” by the nation with the economy in a “very grave situation.”
‘Sustained Job Growth’
U.S. payrolls rose by 431,000 last month after a 290,000 increase in April, figures from the Labor Department showed. The gain was smaller than the 536,000 median forecast in a Bloomberg News survey and reflected a 411,000 jump in government hiring of temporary help for the 2010 census. Private payrolls rose a less-than-forecast 41,000.
“We are going to have sustained job growth but it requires 150,000 to 200,000 jobs to reduce the unemployment rate,” Gross said.
Job growth will be anemic between zero and 100,000 jobs for a while, Gross said. A lot of it is “artificial” and due to “government stimulus” and census workers, he added.
The $224.5 billion Total Return Fund’s holding of government-related debt, which includes Treasuries, was boosted to 36 percent of assets in April, from 33 percent in the previous month, according to the website of Newport Beach, California-based Pimco. Non-U.S. developed-nation debt accounted for 13 percent of the assets, down from 18 percent in March and the least since it composed 5 percent of the assets in November.
The fund returned 11.7 percent in the past year, beating 54 percent of its peers, according to data compiled by Bloomberg. The year-to-date return is 3.97 percent, outpacing 81 percent of its competitors. Pimco is a unit of Munich-based insurer Allianz SE.