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What happens in 2014 will center on the Fed, Gross says

Wednesday, 4 Dec 2013 | 4:25 PM ET
Bill Gross: Strategy is based explicitly on timing the Fed
Wednesday, 4 Dec 2013 | 4:17 PM ET
Pimco's co-CIO discusses why he praised Jack Bogle's investment philosophy.

Pimco's Bill Gross told CNBC in an interview Wednesday that the world's largest bond fund will continue to closely monitor the Federal Reserve's actions in the new year, because he expects his firm to greatly benefit from the central bank's inevitable exit from its unprecedented bond-buying program.

"Pimco's strategy is based explicitly on timing what the Fed is going to do," Gross said on "Closing Bell." "We think, for instance, that Janet Yellen's Fed, you know, is going to be focused on exiting QE. That's tapering and then exiting, and initiating a forward guidance policy, which encourages bond investors like Pimco to take its place."

But Gross said Fed Vice Chair Yellen, who will soon succeed Chairman Ben Bernanke, needs to encourage bond investors by anchoring interest rates at 0.25 percent, or 25 basis points, for "a long, long time." The likelihood of such a move will translate into outperformance for Pimco, he added.

Bill Gross: Fed won't move until unemployment at 6.5 percent
Pimco's co-CIO discusses market strategy and how his firm has priced the fixed-income market.

Meanwhile, Gross said, the yield on 10-year Treasurys is not likely to fall below 2 percent and that it will remain at between 2.5 and 3 percent.

Gross also commented that U.S. unemployment will likely fall to 7 percent or below in the near future.

"The Fed will not move until it's at least 6.5 percent and then perhaps even lower, so we have a period of time going forward where policy rates of 25 basis points will be with us for two, three, maybe even four years," he said.

—By CNBC's Drew Sandholm. Follow him on Twitter @DrewSandholm.

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