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[TOKYO] Bill Gross is recommending the Federal Reserve raise interest rates twice by as early as March. The market doesn't expect that degree of monetary tightening even by the end of 2017.
Speaking in an interview on Bloomberg Television, the billionaire manager of the Janus Global Unconstrained Bond Fund called for the first hike at the Sept 20-21 Federal Open Market Committee meeting.
Futures imply about one-in-three odds of action then, even after hawkish comments by Chair Janet Yellen and her colleagues drove up short-term yields and consigned Treasuries to their worst month since June of last year in August. The probability of two quarter-percentage-point increases by December 2017 stands at 47 per cent.
"I would say c'mon, let's raise interest rates by 25 basis points in September, and c'mon, six to nine months from now let's do it again," Mr Gross told Bloomberg's Erik Schatzker on Wednesday. The money manager said the Fed and other central banks "are addicted to low and negative interest rates," and need to break the habit even if it means economic pain now as opposed to later.
The benchmark 10-year Treasury yield was little changed at 1.58 per cent as of 10.56am in Tokyo from Wednesday, when it completed a 13 basis point surge for the month. The price of the 1.5 per cent security due in August 2026 was 99 9/32.
Two-year note yield was little changed at 0.81 per cent, after a 15 basis-point jump in August. The spread with 30-year yields was as little as 140 basis points on Tuesday, the narrowest level since January 2008. Shorter-dated debt is more sensitive to the outlook for monetary policy.
Fed fund futures signal a 36 per cent chance the Fed will tighten policy this month from as high as 42 per cent on Friday following Ms Yellen's speech at Jackson Hole, Wyoming, according to data compiled by Bloomberg. The odds for an action by year-end stand at 60 per cent.
The calculation assumes the effective fed funds rate will average 0.625 per cent after the central bank's next increase.