Higher Wages Needed for Higher Yields, Says Pimco’s Crescenzi

Bond yields will stay low until the economy generates higher wages, Pacific Investment Management Co.’s Anthony Crescenzi said.

“It takes higher wages to push inflation up, because it’s 70 percent of the inflation story,” Crescenzi, an author whose books include “Beyond the Keynesian Endpoint,” said in an interview on Bloomberg Television’s “Surveillance” with Tom Keene and Adam Johnson. “Higher wages is what causes inflation, and of course that’s what causes bond yields to rise.”

An imbalance in the workforce is a “potent force” to damp wage levels, said Crescenzi, Pimco’s executive vice president. While the jobless rate was 6.3 percent last month, the lowest level since 2008, the participation rate, or share of working people in the labor force, was 62.8 percent, matching the lowest since 1978.

The yield on benchmark Treasury 10-year notes fell one basis point, or 0.01 percentage point, to 2.52 percent in New York trading. It touched 2.40 percent on May 29, the least since June 2013.

The Federal Reserve’s preferred gauge of inflation, a measure tied to consumer spending, has stayed below the central bank’s 2 percent target since May 2012. It was 1.8 percent last month, the Commerce Department reported June 26.

“It will take time, but maybe some could say this is a Goldilocks-like condition where it’s not too strong and it’s not too weak, and that actually keeps things kind of good, especially for investors, because they worry about rising rates,” Crescenzi said.

Newport Beach, California-based Pimco, which manages the world’s biggest bond fund, expects low interest rates and more stable global growth over the next three to five years. Pimco Chief Investment Officer Bill Gross calls the era the “new neutral.”

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