Cofounder, PIMCO
Gross Says Sovereign Debt to Resemble Corporate Returns
March 1 (Bloomberg) -- Bill Gross, who runs the world's
biggest mutual fund at Pacific Investment Management Co., talks with Bloomberg's Margaret Brennan about the outlook for sovereign debt and Federal Reserve monetary policy. Gross also discusses Fed's balance sheet and exit strategy, and the prospects for inflation. (Source: Bloomberg)
About Bill Gross
Bill Gross, cofounder of Pimco, appeared at the third annual Bill Gross Business Plan Competition at Caltech on April 16, 2026. The competition, hosted by Caltech’s chief innovation officer Fred Farina, featured ten finalist teams selected from over 70 applications. Gross spoke about his own experience as a Caltech student, describing a presentation he gave in a class called E10 as one of the most valuable things he learned at the school. He said that "the ability to take your idea, crystallize it into a story and tell it to the world is really, really powerful." During the event, Gross also discussed his views on entrepreneurship, stating that it "unlocks human potential" and that forming a company with shared equity enables people to "feel like owners" and accomplish things "like never ever before." He added that the tools available to entrepreneurs today, including AI and other technologies, are "better than ever before." The competition also included a trailer for a new podcast, "Einstein Suite," which Gross co-hosts with Fred Farina, described as a series of conversations at the intersection of science, art, and culture filmed in the room where Albert Einstein stayed while at Caltech.
Transcript (17 segments)
✨ AI-enhanced transcript with speaker attribution
I
Interviewer0:00
Well, we're going to get some perspective now and reaction from Bill Gross. He's a co-chief investment officer and chief over at PIMCO, where he runs the world's biggest mutual fund. Bill, you don't really need that much of an introduction there, because our audience knows you so well. I want to get your perspective. What jumped out at you from that interview with Mr. Lacker? Any surprises in there?
B
Bill Gross0:22
Well, no surprises. I think Mr. Lacker is rather on the perimeter of the main core of Fed Governors, so some of his positions have been well publicized, but nonetheless they're controversial. I think one of them has to do with the exit strategy that he discussed in the past 10 or 20 minutes, suggesting that probably the first thing he would do would be to sell some of the assets on the Fed balance sheet, primarily mortgages, although it wasn't specific in terms of timing. But to my way of thinking, that's very controversial and certainly not the opinion of the core of Fed decision makers.
I
Interviewer1:06
Asset sales shouldn't be at the front of the quantitative easing reversal here, I mean. But you're concerned about the level of indebtedness and the Fed's balance sheet right now, but you don't think that's the right first step?
B
Bill Gross1:20
Well, I think I'm more concerned about the level of indebtedness in terms of the Treasury's balance sheet and the overall US government deficit, as opposed to the Fed's balance sheet. A chart you showed 10 minutes ago shows the Fed balance sheet at over $2 trillion, and that's a lot different than what it was. But it's been necessary over the past 12 months in order to stabilize financial markets and lower mortgage rates. To the extent that Mr. Lacker thinks the first strategy should be to sell mortgages, I would suggest that there's going to be enough pressure on rates simply by stopping the purchasing of mortgages at the end of this month. The selling of them would put substantial pressure.
I
Interviewer2:06
Yeah, that jumped out at me too. He stood by and said, you know, March is most likely when the Fed is going to stop purchasing those mortgage-backed securities. And there are plenty out there who say that you look at a steepening yield curve, and that means that mortgage rates are also going to continue to go up at just the wrong time for consumers when the Fed stops purchasing. What level of concern should we be having about the possibility of this?
B
Bill Gross2:32
Well, I think we should be concerned. The problem is we don't have models. An additional factor to consider is simply that other central banks, the Bank of England, the ECB, and even the Japanese Central Bank, are all pulling back in terms of their quantitative easing measures at almost the same time. Together they've provided $2 to $2.5 trillion worth of purchasing power to replace what's disappeared in terms of the shadow banking system. So we should all be concerned. This is really the first step in terms of tightening, not monetary tightening, but tightening in terms of credit. So we need to wait for three to six months to see what the effect is, not only on interest rates but on economic growth going forward.
I
Interviewer3:18
So another three to six months past March to see just how the market can digest that move. Yes, interesting. I want to also move from Mr. Lacker's conversation. I do want to get your read. He said inflation in his view is low and it's steady. What did you think?
B
Bill Gross3:38
I think so. The Dallas median and a number of inflation indices came out today. The core PCE is moving down; it was flat on a month-to-month basis. And we are likely to see, according to PIMCO estimates, a core inflation rate approaching zero, not at zero, but approaching zero over the next 12 months. So inflation is really not a problem. There's a lot of capacity excess, certainly in terms of unemployment and in terms of industrial production as well. That typically, in our opinion, will continue to produce lower and lower rates of inflation, as opposed to higher rates of inflation. So the argument is really in terms of the production of quantities of money, as opposed to the slack in the economy in terms of employment and industrial production. We lean towards the latter as opposed to the former in terms of an important influence.
I
Interviewer4:39
You know, something that we didn't discuss with Mr. Lacker but is still very much of interest to the marketplace around the world is what's happening in Europe with the fiscal situation in Greece in particular. I know in looking at the PIMCO Ring of Fire you've got Canada and you've got Germany in sort of safe territory within that. But given that the expectation is that Germany would be helping to bail out Greece in some form, that there would be European intervention with probably Germany at the forefront of that, does that make you more apprehensive about the bet on Germany here?
B
Bill Gross5:16
Well, I think it does. We would prefer to see a lower bailout as opposed to a higher bailout. The number mentioned this morning at least has been in the €5 billion category for Germany alone, a larger package in terms of the total. To the extent that individual countries' balance sheets are contaminated by guarantees and extensions of credit, yes, that leads to questions in terms of sovereign viability down the road. The United States has a substantial portion of its own balance sheet contaminated by agencies Fannie Mae and Freddie Mac, and the like, going forward. So Germany's not alone. Canada's probably in the best shape in terms of all of those guarantees and contingencies. You know, PIMCO and the rest of the world can't all buy Canadian government bonds, but it's a start.
I
Interviewer6:09
But is that changing your overall call on Germany right now, or is it just something you're watching?
B
Bill Gross6:16
I don't think so, because Euroland and Germany itself are moving close to the zero line in terms of economic growth, and certainly lower in terms of inflation. That puts the ECB on hold. What we would do in Germany is basically buy the front end of those yield curves, which are predicated upon the potential for the ECB to raise rates. We think that's certainly not the case. They won't lower rates, but simply keeping the rate at 1% should lend support to the front end of those yield curves. And as I mentioned, they're a better sovereign risk, certainly in terms of Germany and France, than some of their competitors such as the UK.
I
Interviewer6:58
Lastly, Mr. Gross, reading your investment outlook today, you were saying that kings and serfs are beginning to share the same castle, as you put it, in terms of what sovereign debt yields look like and corporate bonds. Explain that to me.
B
Bill Gross7:12
Well, sovereign bonds to some extent are moving in the credit space. That's what that means. The perfect example is that Greece, six months ago, when an investor in sovereign space would have been dependent upon interest rate changes and monetary policy, is now dependent more on the creditworthiness of the country. So there's a morphing, a transition between interest rate space, which sovereign credits were presumed to be in, into more credit space where the viability of the country is at stake. We see interest rates moving from 70 basis points to 400 basis points over in Greece simply based on the credit.
I
Interviewer7:57
And we have to leave it there, sir. But very quickly, before we go, are you still standing by your call that interest rates in this country are going to stay at zero through 2010?
B
Bill Gross8:06
Well, I think certainly in 2010. I mean, the interest rates in this country are dependent upon inflation, inflationary expectations, and as Mr. Lacker might have mentioned, the rate of economic growth and the slack of it. None of those conditions have changed for the negative, and so the Fed should be on hold for at least 2010, at least 2010.
I
Interviewer8:30
Thank you so much, Bill Gross, for joining us this morning.