In his latest investment letter, Gross called inflation “the runt of the Fed’s litter but one that promises to turn a sow’s ear into a silk purse for those who watch it closely.”
In fact, the bond guru said that if both inflation and inflationary expectations remain tame in 2014, bond investors could expect a total return of 3% to 4%. He conceded that this level of gains is not as high as what bond investors had grown accustomed to in the past few decades. But he also expects less volatility.
“Bond investors will be less rich, but more placid in 2014,” said Gross, who also reiterated his love for short-term bonds. He used a seesaw as a metaphor.
“If you’re on the wrong end of an interest rate teeter totter headed up, it makes you wonder why anyone would own bonds, or at least why anyone would own longer-term bonds,” he wrote in his letter.
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