PIMCO's Bill Gross, who runs the world's largest bond fund, said on Friday the only way he would reverse his short position on U.S. government-related bonds and purchase Treasuries again is if the United States heads into another recession.
Since the news on April 11 that Gross turned more bearish on government debt including Treasuries, reflecting his growing worries over the country's fiscal deficit and debt burden, Treasury prices have been soaring.
On Friday Treasury prices fell after an unexpectedly strong U.S. monthly employment report. Treasuries then reversed course on a media report, later denied, that Greece is mulling quitting the euro zone, which revived safe-haven demand for bonds.
Asked Friday what would change his bet against government debt, Gross told Reuters: Treasury yields are currently yielding substantially less than historical averages when compared with inflation. Perhaps the only justification for a further rally would be weak economic growth or a future recession that substantially lowered inflation and inflationary expectations.
The benchmark 10-year U.S. Treasury note was flat, with the yield at 3.15 percent, in early afternoon trading on Friday. On April 11, the yield stood at 3.58 percent.
Gross said for now, the impact of negative real interest rates on commodity prices and other inflation generators argues for Treasury yields to move in an upward direction.
Debt ceilings and deficit reduction frustrations, as well as the end of QE2 in June are other bearish influences, Gross added.
(Editing by James Dalgleish)