Bloomberg News

Pimco’s Gross Predicts ‘Repression’ With Additional Easing

January 26, 2012

(Updates with Treasury yields in third paragraph, Federal Reserve statement in fifth paragraph.)

Jan. 26 (Bloomberg) -- The U.S. will suffer “financial repression” as the Federal Reserve implements additional quantitative easing, according to Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co.

A third, fourth and fifth round of easing “lie ahead,” Gross wrote in a Twitter post. The Fed will probably hold its benchmark interest rate at near zero percent for at least the next three years, the post said. Chairman Ben S. Bernanke said yesterday the Fed is considering additional bond purchases to boost growth after extending its pledge to keep interest rates low through at least late 2014.

Rates on five-year U.S. Treasury notes declined to a record 0.76 percent yesterday, reducing so-called real yields to negative 2.24 percent after accounting for annualized gains of 3 percent for consumer prices.

“Financial repression depends on negative real yields and until inflation moves higher for a period of at least several years, central banks will hibernate at the zero bound,” Gross wrote in his monthly investment outlook on Jan. 4.

Policy makers are “prepared to provide further monetary accommodation” and bond buying is “an option that’s certainly on the table,” Bernanke said after officials gathered for a meeting yesterday. The central bank has purchased $2.3 trillion of securities in two rounds of large-scale asset purchases known as quantitative easing.

The Fed is in the process of replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to “put downward pressure on longer-term interest rates,” based on a statement announcing the plan in September.

Pimco’s Holdings

Gross increased U.S. government and Treasury debt in the $244 billion Total Return Fund to 30 percent of assets in December, the highest in 13 months, after betting against the securities during a rally last year.

The Newport Beach, California-based fund returned 4.2 percent in 2011, lagging behind 69 percent of its peers, according to data compiled by Bloomberg.

Benchmark 10-year yields fell three basis points to 1.97 percent as of 1:51 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The real yield was negative 1.03 percent.

--Editors: Naoto Hosoda, Rocky Swift

To contact the reporter on this story: Wes Goodman in Singapore at

To contact the editor responsible for this story: Rocky Swift at

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