By Min Zeng
Bond-market heavyweight Bill Gross has warmed up to longer-dated
Treasury bonds again after snubbing the securities for months, the
latest sign of how the Bank of Japan's bold monetary stimulus is
causing global investors to change course.
Mr. Gross, manager of the world's biggest bond fund at Pacific
Investment Management Co., said he turned positive on Treasury
bonds maturing in 10 years or earlier because the BOJ's aggressive
plan to buy Japanese government bonds will drive Japanese investors
to seek higher returns in other markets overseas--lifting prices of
assets around the world, including U.S. Treasury bonds. The Bank of
Japan announced its aggressive easing plan Thursday.
"This BOJ printing seeps out daily into global markets as
Japanese institutions which have sold their Japanese government
bonds to the BOJ look for higher yielding replacements," said Mr.
Gross in an email interview Tuesday afternoon with The Wall Street
Journal. "Ten-year Treasurys to us look very low-yielding, but to
them they yield 125 basis points more."
Mr. Gross declined to specify whether he has bought 10-year
notes over the past few days. For now, Mr. Gross still is staying
away from 30-year Treasury bonds, flouting many analysts who argue
the longer-dated maturity could be the focus of Japanese purchases
as Japanese pension funds and insurance firms need high-quality
long-maturity assets to match their long-term obligations.
Mr. Gross runs the $289.1 billion Total Return Fund, and is
founder and co-chief investment officer at Pimco. Part of Allianz
SE, Pimco is one of the world's biggest asset-management companies,
with more than $2 trillion in assets under management.
"In this environment, and ever since 2008, an investor needs to
buy what central banks buy before they buy them," said Mr. Gross.
"In this case, since it's JGBs, an investor needs to buy what
Japanese institutions will buy."
Until recently, Mr. Gross has stayed away from Treasury bonds
maturing in 10 years and 30 years. He is worried that these bonds'
value would get hit hard if the Federal Reserve's bond-buying
program were to taper off, which could cause rates to rise and
drive up inflation. He also has fretted about the U.S. dragging its
feet to put its fiscal issues in order, a development he has warned
may undermine foreign investors' confidence to buy Treasury bonds
and the dollar.
Mr. Gross's latest attitude shift suggests he sees the BOJ's
stimulus boosting demand for Treasury bonds, keeping bond yields
lower in the U.S., not higher as Mr. Gross previously
anticipated.
Mr. Gross added that "to a certain extent" planning for what
central banks buy is "a guessing game," but historically Japanese
investors have bought Treasurys, French government bonds and German
government debt. "Of the three, we like Treasurys the best," he
said.
Mr. Gross's Total Return Fund (PTTRX) has handed investors a
return of 1.22% this year through Monday, beating the 0.55% of the
Barclays U.S. Aggregate Bond Index, according to data from fund
tracker Morningstar Inc. Over the past 15 years, the fund on
average posted an annualized return of 7.2%, compared with 5.9%
from the benchmark index.
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