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Gross: Low yields to stick around
Manager of No. 1 bond fund sees trade, low inflation keeping 10-year yields near current levels.
May 18, 2005: 11:39 AM EDT

NEW YORK (CNN/Money) - Bill Gross, manager of the world's biggest bond fund, sees long-term bond yields staying at or near their current low levels for at least several years.

In a commentary published on his Web site Wednesday, Gross, manager of the PIMCO bond fund, said that current global economic forces should keep yields in check.

"If we had to forecast (and we do), we believe a range of 3 to 4 percent for 10-year nominal Treasuries will prevail during most of our secular timeframe," said Gross. That time frame is three to five years.

Gross said demand for Treasury bonds should continue at high levels from foreign central banks for the foreseeable future, as well as from private investors who will sense little threat of accelerating inflation. Demand for bonds pushes prices up, sending long-term bond rates lower. Bond prices and yields move in opposite directions.

The current global trade picture, with developing Asian countries such as China running huge trade surpluses with the United States, will help keep inflation in check, he wrote.

"In combination with a globalized free trade-based economy exhibiting a surfeit of cheap Asian labor, it will be difficult to generate U.S. inflation higher than our current 3 percent even if interest rates fall further."

Bond prices rose Wednesday, apparently boosted in part by Gross's comments.

A mild reading on inflation in consumer prices outside of energy and food also helped to lift bond prices.

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