Bill Gross, says the Federal Reserve may become more “dovish” after oil prices plunged in recent weeks.
The Federal Reserve would have to take lower oil prices “into consideration,” Gross said today in a Bloomberg Surveillance interview with Tom Keene. “I think that yes, it moves towards a dovish stance relative to what the market expected a few days ago.”
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Benchmark U.S. oil prices have fallen below $60 a barrel, extending losses today as the International Energy Agency cut its global demand forecast for the fourth time in five months. Gross said with inflation showing no signs of approaching the Fed’s 2 percent target, policy makers won’t be in a hurry to raise interest rates.
“Why would they start to eliminate language that talked about an extensive period of time when the U.S. itself is, not deflating but disinflating, and certainly not moving in the direction of its 2 percent target,” Gross said.
The sharp decline in the price of oil has disoriented markets and changed the perception of the creditworthiness of companies and countries, said Gross, who co-founded Pacific Investment Management Co. in 1971 and left the firm Sept. 26 to run an unconstrained bond fund at Janus.
You can listen to the full interview here.
Todays Other Top Stories
Learn Bonds: – Does active bond fund management make sense – Part 2. – In the second part of our series on bond fund management, we’re going to offer two more reasons to consider active management. Last we discussed three important reasons to consider an active manager. This time, you’ll find two more reasons why holding on to passively-managed indices isn’t a great idea.
The Two Way: – Kentucky says Noah’s Ark theme park won’t get tax breaks. – Christian group in Kentucky that is building a Noah’s Ark theme park says it will legally challenge the state’s decision to withdraw its offer of tax breaks for the project.
Bloomberg: – Puerto Rico utility needs to move to natural gas, official says. – Puerto Rico’s power utility must upgrade its facilities to burn natural gas as part of a five-year plan to bolster operations, a board member says.
Bloomberg: – Detroit seen as model in Ohio city facing collapse: Muni Credit. – The council president in East Cleveland said if she had her way, the city would follow Detroit’s path and become Ohio’s first municipality to file for bankruptcy to help solve its fiscal woes.
Fiscal Times: – U.S. municipal bond market shrinks to smallest in five years: Fed. – The U.S. municipal bond market contracted to $3.63 trillion in the third quarter, the smallest amount of outstanding debt in five years, according to Federal Reserve data released on Thursday.
Bond Buyer: – Leaving bankruptcy, Detroit takes on $1.28B of new debt. – On Wednesday, its final day in bankruptcy, Detroit issued $1.28 billion of new debt that its bond team says required novel financing structures to satisfy both Michigan municipal law and the strict confines of Chapter 9 creditor settlements.
Moody’s: – Moody’s places Atlantic City, NJ’s GO rating under review for possible downgrade. – Moody’s Investors Service has placed the Ba1 general obligation bond rating of Atlantic City, NJ under review for possible downgrade. The Ba1 rating also carried a negative outlook. Atlantic City’s recently postponed bond sale of $140 million poses significant budgetary, cash flow and balance sheet risk.
ETF Guide: – The bull market in U.S. Treasuries that just won’t quit. – The almost 3% correction in the S&P 500 over the past week has pushed long-term Treasury bond ETFs (TLT) higher by around 2.75%. And just like that, the bull market in bonds that 100% of Wall Street’s economists said would end badly in 2014 continues uninterrupted. Apologies for saying it, but we told you so!
Business Insider: – The oil crash is not the biggest story in the global markets right now. – The yield on long-dated US Treasury bonds — meaning the 10- and 30-year bonds — has been falling sharply over the last week.
Investment Grade Bonds
ETF Trends: – Corporate bond ETFs could be losing steam. – After an unexpectedly good year for fixed-income assets, corporate bond exchange traded fund investors should tone down their expectations.
Reuters: – Illiquidity causes funding costs to rise. – Trading in the investment-grade bond market has become so stagnant that bankers are warning borrowers they might have to pay liquidity premiums in 2015 if an already chronically illiquid secondary market worsens as rates creep up.
High Yield Bonds
Bloomberg: – Junk-bond yields poised for biggest jump since August. – Junk-rated companies are facing the biggest jump in borrowing costs in at least four months as the plunge in oil prices roils the U.S. bond market.
S&P Capital IQ: – Outflows From High Yield Bond Funds Deepen With Almost No ETF Influence. – Retail-cash outflows from U.S. high-yield funds deepened to $1.9 billion in the week ended Dec. 10, according to Lipper. The outflow is more than double last week’s withdrawal of $859 million, and it’s the third outflow over the trailing four weeks, for a net redemption of roughly $3 billion over that span.
S&P Capital IQ: – Outflows from high yield bond funds deepen with almost no ETF influence. – Retail-cash outflows from U.S. high-yield funds deepened to $1.9 billion in the week ended Dec. 10, according to Lipper. The outflow is more than double last week’s withdrawal of $859 million, and it’s the third outflow over the trailing four weeks, for a net redemption of roughly $3 billion over that span.
Businessweek: – Investors withdraw $1.89 billion from U.S. high-yield bond funds. – Investors pulled $1.89 billion from U.S. junk-bond funds, the biggest weekly withdrawal since the week ended Oct. 1, according to Lipper.
Businessweek: – Junk-bond well runs dry as oil rout stems supply. – The market for new junk bonds has all but shut as plunging oil prices and borrowing costs at an 18-month high deter issuers.
Income Investing: – Energy junk bonds now trade at 87.7 cents on the dollar. – The oil-price rout continues to sweep across the high-yield bond landscape. The average energy-sector bond now trades at just 87.7 cents on the dollar, down from a peak of 106.3 cents less than six months ago, and yields 9.42%, up from June’s record low 4.87%, per a benchmark Bank of America Merrill Lynch index. The average energy bond’s spread, or risk premium over comparable Treasury bonds, has surged to 771 basis points (7.71 percentage points) from 327 during that time.
ETF Trends: – Use broad ETFs for core investment positions. – With over 1,600 U.S.-listed exchange traded funds on the market, building an investment portfolio may seem daunting, but it does not have to be.
ETF Trends: – ETFs keep on raking in cash. – After the stellar inflows totals posted by the exchange traded funds industry 2012 and 2013, another record year of asset gathering may have seemed unlikely at the start of 2014, but ETFs have defied the odds this year.
Investopedia: – Pimco Total Return fund’s new structure. – Pimco has retired its reliance on superstar money managers in the wake of the departures of Mr. Gross and of Mohammed El-Erian, who left his post as co-chief investment officer in January. Pimco appointed six deputy chief investment officers after El-Erian’s departure, and chose Daniel Ivascyn as chief investment officer from their ranks when Gross left.
ETF Trends: – What assets and ETFs appear cheap and expensive. – The easy-money-induced rally has pushed up valuations with many assets beginning to look expensive if not fairly valued. Nevertheless, exchange traded fund investors may still find some pockets of relatively cheap opportunities.
Venezuela Default Odds at 93% as Bonds Sink to 16-Year Low http://t.co/kW3cjmBJe0 Just another casualty of low oil prices & bad gov’t $$
— David Merkel (@AlephBlog) December 12, 2014
30y UST yield now ~25bps lower than the 10yr UST yield ended 2013 when people were freaking out about rising rates.
— David Schawel (@DavidSchawel) December 12, 2014
A week ago, just before huge US payrolls upside surprise, US 10yr yield was 2.25%. Now 2.10%. Though 12.5% drop in WTI crude has helped.
— Bond Vigilantes (@bondvigilantes) December 12, 2014
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