Treasury Rally, Low Rates Key to Stock Gains, Bill Gross Says
October 15 2019 - 02:00PM
Dow Jones News
By Daniel Kruger
About 15% of the stock market's gains this year are attributable
to the rally in U.S. Treasurys, a sign investors should abandon
expectations for double-digit returns, according to the man once
known as Wall Street's "bond king."
The bond rally has pushed as much as $17 trillion in global bond
yields below zero, pushing up stock prices and narrowing the amount
of extra yield investors receive for owning riskier debt, Bill
Gross, co-founder of Pimco, said in an investment note Tuesday.
"In the absence of substantial fiscal stimulation, the economic
and asset boost from negative interest-rate yields may have reached
an end," Mr. Gross said, in his first market commentary since
retiring in February from Janus Henderson Group PLC.
The S&P 500 has climbed almost 20% this year. The movement
is supported by continued economic growth and investor expectations
that supportive central bank policy will sustain the current
expansion, analysts said.
The decline in Treasury bond yields, which fall when bond prices
rise, is important because they are a key reference rate which
lenders use to set interest rates on other debt, such as consumer
mortgages and corporate bonds. Lower bond yields and central bank
interest rates typically stimulate economic growth and support
stock prices.
Mr. Gross, however, expects slowing growth. He said further
efforts by central banks to ease monetary policy probably won't
push stocks higher because of the harmful effects of negative
interest-rate policies.
Those policies "literally rob small savers and larger financial
institutions such as banks, insurance companies and pension funds
of their ability to earn" interest on the bonds they purchase in
order to match assets and liabilities, Mr. Gross said.
Mr. Gross recommended that investors own "high yielding,
secure-dividend stocks."
U.S. government bond prices declined Tuesday after reports that
negotiators for the U.K. and European Union were making progress
toward a preliminary Brexit agreement. The yield on the benchmark
10-year Treasury note rose to a recent 1.753%, according to
Tradeweb, compared with 1.748% Friday. The yield ended last year at
2.684%. Yields fall as bond prices rise.
Federal-funds futures, which investors use to bet on the path of
the central bank's interest-rate policy, show about three-in-four
odds that the Federal Reserve will cut interest rates at its
meeting at the end of this month, compared with an 83% probability
a week ago, according to CME Group data.
Write to Daniel Kruger at Daniel.Kruger@wsj.com
(END) Dow Jones Newswires
October 15, 2019 13:45 ET (17:45 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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