Yields and spreads over Treasuries were too low two months ago and “the Fed tilted over-risked investors to one side of an overloaded and over-levered boat,” Gross said in his monthly investment outlook posted on the Newport Beach, California-based firm’s website on June 27. “Stay calm and don’t panic.”
‘An Overshoot’
The bond market may receive support from financial institutions, which will need to buy as much as $5.7 trillion in safe assets including government bonds by 2020 to comply with the 2010 Dodd-Frank Act in the U.S. and capital standards set by the Bank for International Settlements in Basel, Switzerland, the Treasury Borrowing Advisory Committee said in a May 1 report.
The 14-member TBAC includes officials from Goldman Sachs Group Inc., JPMorgan Chase & Co., BlackRock and Pimco.
“What we are seeing right now is an overshoot,” said Ashish Shah, the head of global credit at AllianceBernstein Holding LP, which oversees $256 billion in fixed-income assets. “It takes time for institutions to make decisions.”
For BlackRock, the world’s largest asset manager with $3.7 trillion, “a reduction in the Fed’s asset purchases is not Armageddon -- it is actually healthy” because trillions of dollars of stimulus have failed to spur much credit growth and economic activity, a group led by Peter Fisher said in a mid- year outlook posted June 27 on the New York-based firm’s website.
Fisher, a senior managing director, joined BlackRock in 2004 after serving as undersecretary for domestic finance at the U.S. Treasury.
Bonds, Stocks
The market value of the Bank of America Merrill Lynch Global Broad Market index has contracted 3.8 percent since April 30 to $45.8 trillion. Global stocks fell 4.2 percent in the same period to $53.82 trillion.
Bernanke may have altered investors’ views about the Fed’s goals more than he expected with his comments in May indicating the central bank had given thought to reducing its stimulus at some point, said Martin Fridson, chief executive officer at New York-based FridsonVision LLC, a financial research firm.
“The events from May 22 have been more fundamental in nature and it’s changing people’s view,” Fridson, who started his career as a corporate debt trader in 1976, said in a June 25 telephone interview. “It’s not wise to conclude that everyone who’s going to leave has already left.”