Gross: Bond Investors' Menus Need to Expand

VIDEO: PIMCO's Bill Gross thinks bond investors need to broaden their horizons to achieve a decent total return

Eric Jacobson 18 April, 2011 | 12:43AM
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In Part III of a series of interviews PIMCO’s acclaimed and widely cited fund manager Bill Gross gave for Morningstar, Gross puts forward the argument that with US interest rates so low, investors should broaden their bond-market horizons and look for diversification beyond Treasuries of various duration. Bill Gross spoke to Morningstar’s Director of Fixed Income Research Eric Jacobson shortly before S&P downgraded its rating for US sovereign debt. See Part I: Treasuries’ Risk-Reward Balance Is Off and Part II: Better Sovereign Debt Opportunities Outside US.


Eric Jacobson: I think a lot of people have looked at the weighting or lack thereof of US interest-rate risk in terms of Treasuries and the overall shorter-than-benchmark duration of the portfolio as a comment on eminent fear of rising interest-rate/upper-moving yield curve. I guess my question is can you help frame that for us in terms of, how much of it is a valuation issue and how much of it is an actual expression of a particular thinking? For example, what’s going to happen and how related is it to the second round of quantitative easing, and my question is isn’t it priced in? And the other question is when are federal funds most likely to go up?

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Eric Jacobson  is director of fixed-income research with Morningstar.