| NEW YORK
NEW YORK Feb 6 Bond investor Bill Gross said on
Monday that without quantitative easing from the European
Central Bank and Bank of Japan the 10-year U.S. Treasury yield
would "rather quickly" rise to 3.5 percent and the U.S. economy
would sink into recession.
Gross, who runs the $1.8 billion Janus Global Unconstrained
Bond Fund, said in his latest Investment Outlook to
clients that Treasury yields will likely rise gradually, yet
will stay artificially low due to the "kindness" of foreign
central bank quantitative easing policies.
"Without that financial methadone, both bond and stock
markets worldwide would sink and produce a tantrum of
significant proportions," Gross said.
"A 2.45 percent, 10-year U.S. Treasury rests at 2.45 percent
because the ECB and BOJ are buying $150 billion a month of their
own bonds, and much of that money then flows from 10 basis
points JGB's (Japanese Government Bonds) and 45 basis point
Bunds into 2.45 percent U.S. Treasuries."
On Friday, the yield on the 10-year U.S. Treasury settled
around 2.47 percent.
Gross repeated in his latest research note an assertion he
has made for several years that loose monetary policies have
"promoted higher asset prices and engendered a modicum of real
"Capitalism has been distorted: savings/investment has been
discouraged by yields/returns too low to replicate historic
productivity gains; Zombie corporations have been kept alive in
contrast to Schumpeter's 'creative destruction,'" he said.
Gross added that debt has continued to rise relative to
gross domestic product; the financial system has not been
cleansed and restored to a balance where risk and reward are on
a level playing field. "Disequilibrium has replaced equilibrium,
although it is difficult to recognize this economic phantom as
long as volatility is contained," he said.
Overall, Gross said a client of his recently asked when the
Federal Reserve or other central banks would ever be able to
sell their assets back into the market.
"My answer was 'NEVER'. A $12 trillion global central bank
balance sheet is PERMANENT - and growing at over $1 trillion a
year, thanks to the ECB and the BOJ," Gross wrote.
(Reporting by Jennifer Ablan; Editing by Toni Reinhold)