<\/div>\n

By Liz Capo McCormick – September 5, 2013<\/p>\n

Pacific Investment Management Co.\u2019s Bill Gross, manager of the world\u2019s biggest bond fund, said investors should buy short-term Treasuries and credit securities that will be bolstered by the Federal Reserve\u2019s intent to keep benchmark lending rates at almost zero.<\/p>\n

\u201cThe safest pitch to swing at may not be stocks, but the asset that will soon be the nearly sole focus of central banks,\u201d Gross wrote in his monthly investment outlook posted on Newport Beach, California-based Pimco\u2019s website today. \u201cInstead of QE, central bankers are shifting to forward guidance, which if reliable, allows financial markets and real economies to plan several years forward in terms of financing rates and investment returns.\u201d<\/p>\n

In December, Chairman Ben S. Bernanke moved the Fed further into uncharted policy territory in combating joblessness by tying the bank\u2019s interest-rate outlook to unemployment and inflation, known as their forward-guidance policy. Policy makers at the Fed, which are buying $85 billion in mortgage and Treasuries in its most recent quantitative easing program, have focused more at recent policy meeting on forward guidance in part to assure financial markets that policy will remain accommodative for many years, even as it may scale back bond buying.<\/p>\n

The Fed is likely to reduce its monthly purchases as soon as this month\u2019s policy meeting, according to a Bloomberg survey taken last month. The central bank\u2019s target rate has been set in a range of zero to 0.25 percent since December 2008.<\/p>\n

\u201cIf unemployment and inflation rates can be at least closely guesstimated, then front-end yields become the most reliable bet in the ballpark,\u201d Gross wrote. \u201cWhile, low, they can at least form the basis for curve rolldown and volatility strategies that have higher return\/risk ratios than alternative carry options, such as duration, credit or currency.\u201d<\/p>\n

Central bankers last year for the first time linked their interest-rate outlook to economic thresholds, saying rates will stay low \u201cat least as long\u201d as unemployment remains above 6.5 percent and if the Fed projects inflation of no more than 2.5 percent one or two years in the future. Fed officials don\u2019t see joblessness falling near that goal until 2015.<\/p>\n

The Federal Open Market Committee is debating whether growth is sufficient to fuel steady improvement in the job market and warrant tapering the Fed\u2019s monthly bond buying. Speculation the FOMC will dial down purchases at its Sept. 17-18 meeting has roiled financial markets, pushing up U.S. bond yields and contributing to the worst rout in the currencies of developing nations in five years.<\/p>\n

Gross also recommended investors buy Treasury Inflation Protected Securities, known as TIPS, as a hedge against the risk that expansionary government and monetary policy could eventually spark inflation.<\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"