Janus’s Gross Says Negative Rates Turn Assets to Liabilities

  • ‘Broken watch’ argument will be proven right, manager says
  • His unconstrained bond fund has returned 4.3% this year

Gross: My Fund Hasn't Been Selling Volatility

Billionaire money manager Bill Gross said negative interest rates are turning assets into a liability stifling the capitalist system.

In his monthly investment outlook posted Wednesday, Gross, 72, reiterated his long-running criticism of central bankers, including Federal Reserve Chair Janet Yellen, for slashing interest rates to zero or below to help raise asset prices in the hope they will trickle down into the economy. It’s a plan, Gross argued, that will fail to produce sustainable economic growth.

“Capitalism, almost commonsensically, cannot function well at the zero bound or with a minus sign as a yield,” wrote Gross, who manages the Janus Global Unconstrained Bond Fund. “$11 trillion of negative yielding bonds are not assets -- they are liabilities. Factor that, Ms. Yellen, into your asset price objective.”

Central banks in Europe and Japan are relying on stimulus packages that include negative deposit rates to fuel inflation and revive the economy. Germany, Switzerland, France, Spain and Japan are among countries that have negative yields, according to data compiled by Bloomberg. While the U.S. hasn’t used that tool, Yellen said last week that further asset purchases must remain part of the Fed’s toolkit.

Gross, in a Bloomberg Television interview Wednesday, called for an interest-rate increase of 25 basis points in September and another 25 basis points in “six to nine months.” He said he expects the first increase if Friday’s U.S. employment report shows a gain of 150,000 or more net new jobs in August.

‘Cements It’

“To me, that sort of cements it,” Gross told Bloomberg’s Erik Schatzker. “If those types of numbers and perhaps a 3 percent GDP quarter do not allow for an interest rate increase, then what does?”

The probability of a Fed increase is 36 percent at its September meeting and 60 percent in December, according to data compiled by Bloomberg.

Gross has been sounding the same alarm for so long he might be “compared to a broken watch that is right twice a day but wrong for the other 1,438 minutes,” he wrote in his commentary. “But believe me: This watch is ticking because of global debt and out-of-date monetary/fiscal policies that hurt rather than heal real economies.”

Gross’s $1.5 billion Janus unconstrained fund gained 4.3 percent this year through Aug. 30, outperforming 61 percent of its Bloomberg peers.

Before it's here, it's on the Bloomberg Terminal.