Bill Gross, manager of the world's largest bond fund, said on Friday the decline in Treasury yields to 60-year lows reflect a high probability of recession in the United States.
Gross, the co-chief investment officer at Pacific Investment Management Co., which oversees $1.2 trillion, also told Reuters Insider television the U.S. is running out of monetary and fiscal policy options.
It is increasingly apparent to us that policy options are limited and that economic growth is slowing down, said Gross said.
Thursday, Morgan Stanley warned in a research report the United States and euro zone are dangerously close to recession, joining a number of firms that have slashed forecasts for global growth in the second half of the year. Not only are economists and investors bracing for a slowdown in the U.S., they are concerned about a deceleration in China's growth rate to persistent sovereign-debt turmoil in Europe.
Morgan Stanley cut its global GDP forecast to 3.9 percent growth from 4.2 percent for 2011, and to 3.8 percent from 4.5 percent for 2012.
There's no doubt that (U.S.) growth from the standpoint of employment or unemployment and growth from the standpoint of corporate profits is definitely a risk -- whether or not we see a positive 1 percent real GDP number I think is besides the point.
Gross said low Treasury yields are flashing recessionary conditions.
They certainly reflect, in terms of their yields, not only a potential for a recession but the almost high probability of recession and the result of lowering of inflation -- that is key.
On Thursday, the yield on the benchmark 10-year U.S. Treasury note dropped below 2 percent to 1.98 percent. Friday, the 10-year yield stood around 2.08 percent.
In May, Gross told Reuters the only way he would purchase Treasuries again is if the United States heads into another recession.
Gross, who manages the $245 billion Total Return Fund, reiterated that sentiment on Friday: I don't think there is any value there unless you see a recession.