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We're Buying What the Fed and ECB Are Buying: Gross

Wednesday, 26 Sep 2012 | 3:37 PM ET

Pimco has been selling some of its Treasury holdings and is putting money into what the world’s central banks plan to buy, founder Bill Gross told CNBC’s "Street Signs" on Wednesday.

Bill Gross
CNBC
Bill Gross

Back in August, Gross called the 1.5 percent yield on the 10-year Treasury a bottom. But he said “it’s hard to know when the Fed and other central banks keeping throwing hundreds of billions into the pot.”

Having pared some Treasury holdings, Gross has now begun to get out in front of the Federal Reserve and European Central Bank.

“We continue to anticipate what the Fed is buying,” Gross said. “They’ve told us they will buy $40 billion to $70 billion of agency mortgages every month until the cows come home. It pays to own these mortgages even though they’re overvalued.”

Pimco is also looking to get ahead of any ECB move to buy Spanish and Italian debt. “They told us they are going to buy Spanish and Italian 1- to 3-year debt should those countries apply for a rescue,” Gross said. (Read More:ECB Is Just ‘Bridge’ Towards Stable Future: Draghi.)

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The 10-year yield has now fallen in 8 straight sessions, and generally stocks and bonds go in different directions. CNBC's Rick Santelli explains, and PIMCO's Bill Gross, weighs in.

While the riots on the streets of Spain and Greece are troubling, Gross expects that in the next two to four weeks Spain will be a recipient of ECB buying its bonds “so you want to buy them before they do.”

Gross also said the U.S. needs to address its high structural deficit. “The U.S. has gotten itself into a real corner in terms of high debt levels and that may lower real economic growth going forward,” he warned.

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