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Slow Growth, Inflation Make US Bonds Bad Buy: Gross

The US economy is headed for a period of higher inflation and lower growth that makes the nation's debt unappealing when measured against its global competitors, Pimco's Bill Gross told CNBC.

Bill Gross of PIMCO participates in a conference on the future of housing finance at the Treasury Department in Washington, DC.
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Bill Gross of PIMCO participates in a conference on the future of housing finance at the Treasury Department in Washington, DC.

The head of the world's largest bond firm, with nearly $1.3 trillion under management, explained the firm's position further as it has cut out all longer-dated exposure to US debt.

Instead, the firm is comfortable with more stable countries such as Canada, Brazil and Germany. At the same time, Pimco also has turned to the equity marketsto combat low-yielding US debt as the country tries to get its finances under control.

"Debt tends to slow economic growth," Gross said in a live interview. "We're going to have a slow-growth economy and probably one in which inflation goes higher, which is not a conducive recipe for financial markets."

Gross said the firm prefers countries with "pristine balance sheets," company in which the US does not belong as it reaches its debt ceilingand grapples with a budget deficit approaching $1.4 trillion and a national debt of $14.3 trillion.

Yet he said Pimco's investment choices don't reflect a dire view on the US, but rather simple investment math that does not point to Treasurys as an effective vehicle.

"It's not that the United States is moving down the road towards decay or has too much debt that it can't be rectified," he said. "The situation is really one in which Treasurys yield so little and it's better to look for higher yielding opportunities."

He also insisted that even though Pimco has quit Treasury notes in favor of bills, the firm is not "short" a US debt position, meaning that it is not placing any outwards bets on further declines in bond prices.

He blamed a "blogger" who created a "misconception" that Pimco had shorted Treasurys. The comment was an apparent reference to the zerohedge blog, whose author posted on Twitter that Pimco holds a negative duration weighted exposure to Treasurys.

Gross said only that Pimco is "very underweight" on Treasurys and that the firm is making money even though it has been on the wrong side of that trade in recent weeks.

"Pimco is doing just fine," he said. "We're outperforming 77 percent of the bond market universe because we're holding other bonds that are doing better than Treasurys."

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