Top bond manager expects Fed to cut interest rates by January


From Reuters
Thursday, July 13, 2006

NEW YORK -- Yields on the benchmark U.S. Treasury Note should fall 1 percentage point from current levels as economic growth softens and the Fed is finally forced to reverse its campaign of lifting borrowing costs, bond fund manager Bill Gross said on Thursday.

Gross, who runs the world's biggest debt fund for Pacific Investment Management Co., or PIMCO, said U.S. gross domestic product growth should slow to 2 percent "very shortly," prompting the Federal Open Market Committee to begin cutting interest rates by January.

The U.S. economy, heavily reliant on financing, cannot long endure the current flat shape of the yield curve, Gross said in an interview with Reuters. "Banks, hedge funds, even GE (General Electric Co.) depend on a positively sloped curve, and we will get one pronto."