Pimco Sees Fed on Hold for Months Whatever U.S. Jobs Report Says

  • Treasuries head for seventh weekly gain, buoyed by Brexit vote
  • Fed to move sooner than market projection for 2018, Pimco says

How Will Today's Jobs Report Impact Fed Policy?

Pacific Investment Management Co. says the Federal Reserve will keep interest rates on hold no matter what Friday’s employment report shows.

Treasuries headed for a seventh weekly gain as the U.K.’s vote to leave the European Union threatens to slow economic growth and drives investors to the relative safety of bonds. Gains in U.S. jobs and wages won’t be enough to get the Fed to move anytime soon as policy makers assess what’s happening in the global economy, Pimco’s Mark Kiesel said.

“Brexit uncertainty is going to keep them on the sidelines,” Kiesel, who is one of three managers for the $86.4 billion Pimco Total Return Fund, said on Bloomberg Television Thursday. “We think the Fed will be on hold for several more months.” Total Return is the world’s biggest actively managed bond fund.

Benchmark Treasury 10-year note yields were little changed at 1.39 percent as of 7:03 a.m. in New York, according to Bloomberg Bond Trader data. They set a record low of 1.318 percent on Wednesday. The price of the 1.625 percent security due in May 2026 was 102 5/32.

The Bloomberg U.S. Treasury Bond Index’s seventh weekly gain would be the longest winning streak since 2012, when the European debt crisis sparked a rush for the haven of Treasuries. The gauge has returned 3.1 percent since the rally began in the last week of May.

Traders have gone too far in betting the Fed’s next rate increase won’t come until 2018, Kiesel said. “The probability of them hiking is higher than what the market’s priced in,” he said. “That’s a little bit too pessimistic.”

Kiesel has spent 2016 recommending U.S. corporate bonds. The Bloomberg U.S. Corporate Bond Index has returned 8.9 percent this year, versus 6.1 percent for the Treasuries index.

The U.S. economy added 180,000 jobs in June, picking up after a 38,000 gain in May, based on a Bloomberg survey of analysts. Average hourly earnings, an inflation barometer, rose 2.7 percent from a year earlier, the survey suggests. The figure would be an increase from 2.5 percent the previous month.

For more on the Federal Reserve and inflation, click here.

Kim Youngsung, who correctly predicted a Brexit vote would send U.S. yields to down to record levels, said they will stay low.

“Brexit is the big event,” said Kim, the head of overseas investment in Seoul at South Korea’s Government Employees Pension Service. “I’m really confident we’re not going to have an interest-rate hike this year. Even if we have strong data, it isn’t going to change the trend in fixed income.”

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