Bill Gross, the world's most influential bond fund manager, raised his forecast for benchmark ten-year bond rates Wednesday, admitting he underestimated the strength of the global economy.
A year ago, Mr. Gross, the founder and chief investment officer of Pacific Investment Management Co., said treasury rate yields would range from 3 to 4.5 per cent in the next three to five years. With the 10-year Treasury trading at 5.15 per cent in New York on Wednesday, Mr. Gross admitted he had made a mistake and lifted his three-to-five-year forecast for the 10-year note's yield to between 4 per cent and 5.5 per cent.
“My bad,” he wrote in a newsletter released late on Tuesday.
In recent years, PIMCO's economic forecasts have focused on globalization, technological innovation, and a lack of global aggregate demand, a combination that he believed would result in moderate disinflationary growth that would lead to benign and ultimately bullish movements in global bond markets, Mr. Gross wrote.
“Global inflation has remained low, but the combination of U.S. consumption propelled by a multi-year housing boom, Chinese reciprocation in the form of massive investment spending, and the positive knock on effects in Japan and numerous ‘emerging' economies produced surging global growth that has caused central banks and indeed private investors to enforce higher real yields as recompense,” he said.
In Tuesday's forecast, Mr. Gross set a new rate range on the expectation of modest global inflation of 1 to 3 per cent.
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