Bill Gross Curve Quotations

At some point down the road, in a dynamic economy such as the U.S., we should be returning to a more normal shape. That means ultimately short rates and the front end of the curve will trade at lower yields than long rates.

A bullish orientation towards the front-end of the curve therefore should begin to dominate bond strategies, combined with an avoidance of anything that carries those low-risk premiums that Greenspan finally diagnosed, ... Those assets include real estate, equities, high yield, corporate, and some areas of emerging-market debt.

If Fed Funds were expected to rise in the future, the curve would be positive with intermediate and long bonds requiring higher yields as a cushion against accelerating short rates. If the Fed were expected to lower rates, a flatter, even inverted curve might result. It's not that this academic theory has been dislodged in recent years but it may have been asked to take a seat next to the increasingly important variable of global financial flows. These flows, no doubt, rely critically on the willingness of foreign investors to hold U.S. assets in the face of potential currency and asset price depreciation.

If he continues to believe that a flat curve is indicative of economic weakness, the hand-off may be one in which we stop at 4.5 percent.