Salient to Investors:
Bill Gross at Pimco said:
- Buy short-term Treasuries and credit securities that will be bolstered by the Fed’s intent to keep benchmark lending rates at almost zero. These assets will soon be the nearly sole focus of central banks.
- Buy TIPS as a hedge against the risk that expansionary government and monetary policy could eventually spark inflation.
- Central bankers are shifting away from QE to forward guidance – tying their interest-rate outlook to unemployment and inflation – which if reliable, allows financial markets and real economies to plan several years forward in terms of financing rates and investment returns. Central bankers last year for the first time linked their interest-rate outlook to economic thresholds.
- If unemployment and inflation rates can be at least closely estimated, then front-end yields become the most reliable bet in the ballpark – while low, they can at least form the basis for curve rolldown and volatility strategies that offer higher return/risk ratios than alternative carry options, such as duration, credit or currency.
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