Gross Says Stay in Shorter-Maturity Debt After Yellen Roils Bet

(Bloomberg) -- Pimco's Bill Gross recommends staying in bonds maturing in five years and less even after comments last month from Federal Reserve Chair Janet Yellen sent shorter-maturity yields surging.

“The 1–5 year portion of the curve, beaten up recently due to Fed ‘blue dot’ forecasts and Yellen’s ‘six months after’ comments, should hold current levels if inflation stays low,” Gross wrote in his monthly investment commentary on Newport Beach, California-based Pimco’s website. “But 5–30 year maturities are at risk.”

Gross’ $232 billion Total Return Fund has lost 0.83% over one month, ranking it in the bottom 3 percentile versus other comparable funds, according to data compiled by Bloomberg. That has helped to drop the average annual return over five years of the world’s biggest bond fund to 6.8%, placing it in the 56 percentile.

Two-year Treasury note yields surged the most since 2011 on March 19 after central bank officials increased their projections for the main policy rate and Yellen signaled a rate increase may come six month after the central bank completes its bond buying, expected to be in the fall.

The median estimate by Fed officials was for the fed funds rate to move to 1% in December 2015 and 2.25% a year later, that compares to estimates in December of 0.75% and 1.75% respectively, according to their summary of economic projections which are represented by blue dots. An updated SEP, as the report is known, had a median estimate for the long-run policy rate was 4%, unchanged from the December report.

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