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Gross: Fed Funds to stay low far longer than expected

  • Stop worrying so much about the taper and eventual end of QE, writes Bill Gross. Its has to and will happen at some point - the Fed cannot continue to add $1T to its balance sheet much longer without something badly blowing up.
  • It's the policy rate that matters - how long does Fed Funds stay at 0%; what is the long-term neutral rate in this economy of ours; can the central bank convince investors it has a clue?
  • We do know the increase of 125 bps in long-term rates has put a big dent in housing start growth and halted mortgage refinancings. It suggests to Gross that once QE is gone and the focus turns to Fed Funds, it'll be clear this rate is going to stay lower than expected for "a long, long time. Right now the market (and the Fed forecasts) expects fed funds to be 1% higher by late 2015 and 1% higher still by December 2016. Bet against that." (The CME awaits)
  • "We have seen a 3% Treasury yield and a 4½% 30-year mortgage rate and the economy peeked its head out its hole like a groundhog on its special day and decided to go back inside for another metaphorical six weeks."
  • Treasury ETFs: SHY, SHV, IEI, BIL, TUZ, FIVZ, DTUL, VGSH, DTUS, DFVS, DFVL, SST, ISTB, TBZTLH, TLT, IEF, DTYL, DLBL, ILTB, TENZ, ITE, TLO, EDV, VGIT, VGLT, TMF, TYD, LBND, UBT, UST, TMV, TYO, DSTJ, DSXJ, SBND, PST, TBT, DTYS, DLBS, TBF, TTT, TYNS, TYBS, TBX.
  • Broad fixed-income ETFs: AGG, BND, LAG, SCHZ, BOND, SAGG, MINC.
Comments (5)
  • Stanley J G Crouch
    , contributor
    Comments (2080) | Send Message
     
    The correlations between Fed Funds and longer duration bond yields are highly suspect JUST IN Treasuries, never mind the entire debt market...

     

    Bill Gross is fully aware of this fact, no matter what his book-talking rhetoric suggests.

     

    Whether he is right or wrong about long-term futures on Fed Funds remains to be seen. But, I guess he's betting some investor money on his projected outcome.
    2 Oct 2013, 07:56 AM Reply Like
  • bbro
    , contributor
    Comments (9330) | Send Message
     
    Call me when we have a positive real funds rate...Over the last 55 years no recession has occurred unless the real funds rate has gotten to at least 1.5%
    2 Oct 2013, 08:36 AM Reply Like
  • Financehulligan
    , contributor
    Comments (1079) | Send Message
     
    Are US still closed?
    2 Oct 2013, 10:35 AM Reply Like
  • Zenith Strategies
    , contributor
    Comments (442) | Send Message
     
    Stop worrying about the taper? So if they do reduce and then stop taper while keeping short term rates low, the curve steepens which is good for banks, mortgage reits and bad for our bond holdings with high duration.
    2 Oct 2013, 11:01 AM Reply Like
  • SharkDude
    , contributor
    Comments (553) | Send Message
     
    hahahaha. you think Gross wants people to buy bonds?
    2 Oct 2013, 11:24 AM Reply Like
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