Federal Reserve policy is keeping Treasury yields too low to provide reasonable returns for most investors, Pimco's Bill Gross told CNBC.
With the Fed holding to its zero interest rate policy despite intensifying inflation threats, Gross said his firm, which runs the largest bond fund in the world and has more than $1 trillion in assets under management, will look elsewhere.
"The near-term market has been unduly influenced by quantitative easing," he said in a live interview. "We've had two huge buyers in the Treasury market at artificial levels. Basically the Chinese and others aren't that picky in terms of the interest rates that they see. What they want are jobs for their countrymen."
Gross pointed out that the push to keep investors away from Treasurys is somewhat by design as Chairman Ben Bernanke has sought to push up stock prices and create what he has referred to as a "wealth effect."
"What they want to do is support stock prices and asset prices and they've done so," he said. "Treasury yields at these levels are very unattractive."
The yield on the benchmark 10-year Treasury note would have to rise to 4.50 to 5 percent to be at what Gross terms a "normalized" level.
Until that happens, he advocates looking elsewhere, such as to Canada and Mexico, for government securities. Because those markets are relatively small, he said investors also can do well in bonds from Brazil and Germany.
US bond prices rose following the Gross interview.
Pimco has shed nearly all its Treasury holdings, keeping only short term bills and dumping all of its longer-term notes.
Gross also addressed the tax and budget debate in Washington, saying that corporations are paying too little in taxes compared to individuals. He said fixing the tax code would be helpful but only if it's done right.
"That's fine as long as you get rid of the loopholes. The problems that always result from that is that corporations, through K Street lobbying, have basically made the deal a good one for themselves," he said. "They're already only paying 1 percent of GDP (in taxes). Labor is paying a much higher percentage of taxes than they ever have."