Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said the pace of jobs gains last month remains in line with “new normal” growth that is below historic averages.
The payroll data “certainly explains the ‘new normal’ in terms of a 2 to 3 percent real growth rate,” Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Mike McKee. “The ‘new neutral’ is still up for grabs in terms of what it is and what it is going to be.”
Employers added 217,000 jobs in May to push U.S. payrolls past their pre-recession peak and the jobless rate held at an almost six-year low of 6.3 percent as the economy gained traction, figures from the Labor Department showed. May marked the fourth straight month payrolls have increased at least 200,000, the first time that’s happened since September 1999 to January 2000.
Pimco, which popularized the term “new normal” to describe an era of below-average economic growth following the financial crisis, has said this quarter that the period is gradually entering a new phase. Economic growth globally will be converging toward lower, yet more stable top speeds and central bank interest rates will remain stuck below their pre-crisis equilibrium in a “new neutral,” which will include a long term Federal Reserve neutral policy rate of 2 percent in nominal terms and zero percent when adjusted for inflation.
Gross, the co-founder of Newport Beach, California-based Pimco, has advocated buying shorter-maturity securities such as U.S. Treasuries and had been bullish on Italian and Spanish securities with the European Central Bank cutting interest rates to record lows. U.S. two-year notes were little changed to yield 0.39 percent.
The $229 billion Pimco Total Return Fund managed by Gross has risen 0.87 percent over the past month, beating 92 percent of its peers, Bloomberg data shows.
“We are big holders of Italy and Spain, we’ve benefited from it,” Gross said. “The question becomes at this point are yields so low that they don’t make sense anymore? Italy and Spain, two countries close to bankruptcy two years ago now have five-year debt trading at 30 basis points less than the U.S. Treasury.”
The ECB cut its deposit rate to minus 0.1 percent, becoming the first major central bank to take one of its main rates negative. In a bid to get credit flowing to parts of the economy that need it, the ECB also opened a 400-billion-euro ($542 billion) liquidity channel tied to bank lending and officials will start work on an asset-purchase plan.
The Total Return Fund is in the midst of “one of the most significant performance turnarounds in our history,” Gross said. “There is going to be fear on our competitors’ faces again. The game is on, and Pimco is back.”