PIMCO’s Bill Gross Warns Of Too Much Risk With Too Low Yields in Bonds

Bill Gross is the de facto Bond King.  Running a giant institution like PIMCO give you quite some power.  Gross makes monthly outlooks and his June report is not offering any great hope for a reversal.  Gross also told CNBC that he does not expect a Eurobond deal to surface as some investors are hoping for.

In the June outlook, Gross noted, “Soaring debt/GDP ratios in previously sacrosanct AAA countries have made low cost funding increasingly a function of central banks as opposed to private market investors. Both the lower quality and lower yields of such previously sacrosanct debt represent a potential breaking point in our now 40-year-old global monetary system.”

The PIMCO High Income Fund (NYSE: PHK) has over $1.5 billion in assets and PIMCO Total Return ETF (AMEX: BOND) reportedly hit $1 billion in assets last week after having been traded since only March of this year.

Gross also believes now that fixed income investors should favor quality and what he calls “clean dirty shirt” sovereigns such as the United States, Mexico and Brazil.  He also emphasized intermediate maturities that gradually shorten over the next few years.

Here is the key takeaway Gross offered up which we are focusing on: “The global monetary system which has evolved and morphed over the past century but always in the direction of easier, cheaper and more abundant credit, may have reached a point at which it can no longer operate efficiently and equitably to promote economic growth and the fair distribution of its benefits.”

FULL JUNE OUTLOOK

JON C. OGG