America may lose AAA rating, warns Pimco’s Gross

Bill Gross, the managing director of Pimco, has joined a chorus warning America could lose its AAA credit rating.

Gross, the most senior employee at the world’s largest bond investor, has joined prominent fixed income investors such as Jim Leaviss, the head of retail fixed income at M&G Investments in London, who have said America’s AAA rating is under threat.

Gross has said America’s quantitative easing programme will reduce the buying power of the dollar and cause inflation and potentially higher interest rates for America.

He has urged investors to move out of the dollar and into debt whose interest payments are pegged to interest rate rises, as well as into sovereign bonds and emerging market corporates with higher initial yields. (article continues below)

In stocks, he has recommended macroeconomically stable names which could benefit from commodity inflation, including Canada and Brazil, despite concerns Brazil’s currency could be overheating.

“All investors should fear the consequences of mindless US deficit spending. Higher inflation, a weaker dollar and the eventual loss of America’s AAA sovereign credit rating are the primary consequences,” Gross says.