PIMCO Chief on Bonds, Rates

by Alex Stenback on October 28, 2005

Pimco_logo2b_2Bill Gross, Managing Director and bond market guru at PIMCO, posts his insights on what we might expect from the bond market, and thus interest rates, in the coming months.  The whole post, (Warning: opens with a semi-political screed, not that we agree or disagree) is worth a read, but here are the high points:

1. The highly leveraged (read: financed) economy will likely be more sensitive to interest rates than in the past.
2.  Industrial production and service-related indicators peaked nearly a year ago, and peaking to declining prices in some frothy coastal [housing] markets may be a sign that higher rates are starting to bite.
3. Based on previous tightening cycles by the Fed, this one is "in the eighth inning."
4. We are due for what appears to be a 2% or less GDP growth rate in 2006, a rate sure to stop the Fed and to induce eventual ease at some point later in 2006.

In summary: Mr. Gross is telling us that this tightening cycle has done its job, and as the economy slows, we can expect the Fed to stop tightening rates, and perhaps begin easing by mid 2006. Again, go read the article, complete with charts and data to support the assertions we’ve cribbed above.
ยท Investment Outlook 2005 [Bill Gross, PIMCO]

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