Treasurys Only Option as Greece Roils Markets: Gross
CNBC.com Senior Writer
Investors have little choice now but to cling to low-yielding U.S. government debt as European leaders ponder a messy Greek exit from the euro zone, Pimco's Bill Gross told CNBC.
Despite its own debt mess that has the U.S. headed toward the so-called fiscal cliffby year's end, Gross said a flight from risk assets such as stocks and commodities will continue to send money into Treasurys.
Pimco's Total Return Fund is the largest bond fund in the world with nearly $260 billion in assets. Last year, Gross told investors to avoid Treasurys, which posted strong gains, and buy preferred stocks, causing him to issue an apology earlier this year because the fund underperformed its peers.
Investors, meanwhile, are looking for help as traditional safe havenslike gold, corporate bonds and defensive stocks are beginning to lose their allure.
"It's what we call the cleanest dirty sheet, and at the moment the cleanest dirty shirt is the United States," Gross told CNBC's "Street Signs." "It's Treasurys, it's those 1.75 percent 10-year Treasurys that are definitely overvalued but at a time of crisis appreciate in value or least least hold their value."
Policymakers are trying to find ways to avoid Greece leaving the euro zone as the overleveraged country tries to pay its $400 billion euro debt while burdened with an expensive currency.
Exiting the euro zone would allow Greeceto return to its former currency, the drachma, which it could devalue and make its debts cheaper. The ramifications of a euro zone breakup, though, have had the markets on edge for more than a year now.
"It's a global crisis from the standpoint of too much debt and delevering," said Gross, Pimco's co-CEO. "Greece is just the focal point for the moment, but it's a continuing process and that's why you see gold down, that's why you see oil down, that's why you see stocks down, that's why you see risk assets down, is because they're delevering and money is basically fleeing to the center."
Gross did not make a definitive call on whether a Greek exit from the euro would be orderly or disorderly, but he did say that the country does not have the luxury to wait until its June elections to determine its fate. Leftist candidates are leading at the moment, and they have vowed to reject the former austerity agreements that allowed Greece to continue to receive bailout payments from central banks.
Greek depositors have been pulling hundreds of millions of euros from banks, with the fear being that a run would occur if the political situation fails to stabilize.
"It may not necessarily be decided at the ballot box, it's decided at the ATM machine in assets, to the extent that those machines are drained of euros," he said. "Then at some point the exit becomes necessary. A long weekend perhaps makes it orderly, but perhaps not."