Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said financial markets will experience wider price swings with the Federal Reserve focusing on the unemployment rate.
“I would suspect that the 7.8 percent today gives us a little breathing room in terms of moving down, but I still think the markets will be more volatile,” Gross said today in a radio interview on “Bloomberg Surveillance” with Tom Keene after a report showed employers added workers in December at about the same pace as the prior month, and the unemployment rate matched a four-year low.
Payrolls rose by 155,000 workers last month following a revised 161,000 advance in November that was more than initially estimated, Labor Department figures showed. The median estimate of 82 economists surveyed by Bloomberg called for an increase of 152,000. The unemployment rate held at 7.8 percent, matching the lowest since December 2008.
The central bank on Dec. 12 said it would hold borrowing costs low “at least as long” as the unemployment rate remains above 6.5 percent and inflation projections are for no more than 2.5 percent.
“The report tells us that we still have an unemployment problem,” Mohamed El-Erian, Pimco’s chief executive officer and co-chief investment officer along with Gross, said today in a interview on Bloomberg Television with Deirdre Bolton. Pimco expects continued unusual Fed activism in the months ahead, El- Erian said.
Most U.S. stocks rose, extending the biggest weekly gain in 13 months, with the jobless rate at a level that’s unlikely to hasten the end of Fed stimulus. The dollar pared earlier gains and Treasuries trimmed losses posted yesterday after minutes from the Fed’s last policy meeting showed board members will probably end their $85 billion monthly bond purchases in 2013.
Volatility across markets declined last year, signaling investors were less concerned about the outlook for the economy with central banks in the U.S., Europe and Japan providing unprecedented stimulus.
JPMorgan’s G7 Volatility Index of currencies fell to a record-low 7.06 on Dec. 18. Bank of America Merrill Lynch’s Option Volatility Estimate MOVE Index covering Treasuries fell 39 percent from its high last year. The Chicago Board Options Exchange Volatility Index, known as the VIX, ended December at 18.02, below its high for the year of 27.73 in June.
The yield on the benchmark 10-year note rose two basis points to 1.94 percent at 11:39 a.m. in New York. Yields climbed 16 basis points the prior two days, raising concern the rally in government debt may be ending.
Treasury 10-year note yields won’t reach the high of 2.37 percent they hit in March unless the Fed abandons quantitative easing, Gross said. That isn’t likely as more dovish members of the Fed, such as the Boston Fed’s Eric Rosengren and Chicago Fed President Charles Evans, who are more concerned with encouraging growth than thwarting inflation, become voting members in 2013, Gross said in an Bloomberg Television interview with Erik Schatzker and Stephanie Ruhle.
Gross reiterated that Italian bonds are attractive at 3.5 percent as are local currency markets in Brazil and Mexico, while saying he’s being cautious with municipal securities because of possible changes in U.S. tax laws.
The firm’s $286 billion Total Return Fund (PTTRX:US) has gained 10 percent over one year, beating 94 percent of its peers, according to data compiled by Bloomberg. Pimco, a unit of the Munich-based insurer Allianz SE (ALV), managed $1.92 trillion as of Sept. 30.
To contact the reporter on this story: Alexis Leondis in New York at firstname.lastname@example.org
To contact the editor responsible for this story: Dave Liedtka at email@example.com