Bill Gross Favored Top Rated Bonds

Pimco has also favored agency mortgage securities, bank preferred stocks, senior bank debt and top-rated asset-backed securities including those tied to credit cards, student loans and auto-debt payments, Gross wrote. Those picks have been “well-advertised Pimco strategies over the past six months but there are others in clear sight,” he wrote. Commercial mortgages may also be a good bet because the government may be “headed next” to the asset class, Gross said today in an interview with CNBC. Some “hint” may come in a month or two, he said. Treasury Inflation Protected Securities, or TIPs, while not something the government would buy, “can benefit if and when the government’s efforts to reflate begin to take hold,” Gross wrote. The notes are priced as if the U.S. consumer price index will average negative 1 percent over the next 10 years, he said. Since September, U.S. government actions have included a $700 billion financial-rescue bill; the Federal Reserve’s plan to buy $600 billion of agency debt and mortgage bonds; Federal Deposit Insurance Corp. guarantees on bank debt; and $13.4 billion in loans to General Motors Corp. and Chrysler LLC. In general, bond investors should be “vigilant” on inflation, but “that is a battle to be fought in the Treasury market where low yields offer little reward and increasing risk,” Gross wrote. The U.S. credit crisis results from the housing market, bond insurers, American International Group Inc., Fannie Mae and Freddie Mac, automakers, hedge funds, and governments all acting like “Ponzi schemes, whose ultimate payoffs were dependent on the inclusion of more and more players and the production of more and more paper. Bernie Madoff?” Gross wrote that “we have met Mr. Ponzi and he is us --all of us.”