U.S. economic strife leads to lower Treasury yields: PIMCO
The failure of policymakers to stabilize the U.S. economy and the housing sector is encouraging investors to favor private bonds and overseas commercial real estate investments, analysts said this week. William Gross, managing director with bond giant PIMCO, wrote Tuesday that "strangely enough, matrimonial discord between rich and poor (in the U.S.) has led to lower, not higher, Treasury yields, and approaching recessionary winds forced the Fed and private investors to favor bonds." At the same time, Gross issued a warning saying, "There are limits, however. Ten-year Treasurys at 2.25% are discounting a heap of trouble, and neither investor nor borrower may emerge from this brouhaha unscathed." He added, "We prefer investing in the cleaner, dirty-shirt countries of Canada, Australia, Mexico and Brazil, along with nondollar currencies that have strong trade ties with the Asian continent." Billionaire Sam Zell expressed similar views during an interview with Bloomberg Television. Zell said he's entering the Colombia and India real estate markets since he currently favors international investments over property deals in the United States. He told Bloomberg he will keep his U.S. property market involvement to a minimum since it continues to struggle with low interest rates and inflation that could be as high as 6% by his estimations. The negative reports from Gross and Zell follow a rather uneventful speech given by Federal Reserve Chairman Ben Bernanke last week. Bernanke said housing remains a significant drag on the economy, and the Fed – while dedicated to helping the economy – can only do so much without Congress implementing the right tax and fiscal policies. "Finally, and perhaps most challenging, the country would be well served by a better process for making fiscal decisions," Bernanke said. "The (debt ceiling) negotiations that took place over the summer disrupted financial markets and probably the economy as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world." Write to: Kerri Panchuk.