Now PIMCO has the "new neutral"

There is a neutral or natural real rate of interest in any economy. It is the rate that will lead to balance between savings and investments and lead to sustained growth rate, usually defined as trend rate, with controlled inflation. From the people who brought you the "new normal" we now have the "new neutral" which is the interest rate we can expect that will be consistent with trend growth. 

Bill Gross argues that the real rate of interest that will be the neutral rate will be close to zero and not the normal rate of 2-3 percent which has been the historical level. The "New Neutral" is the new epoch after the New Normal in the post Great Recession world. Perhaps this new epoch is because of the management changes at PIMCO, but that is another story. 

Determining the neutral rate of interest is a big deal and will have significant impact on the risk premia for all asset classes and how much bonds anyone should hold in a balanced portfolio. The consensus view is that rates have been kept low by the Fed but that over time the neutral rate will have to move higher. In this market view, the bias for rates is toward higher levels, so you should hold less bonds in any portfolio.

Under a view that the neutral real rate is negative and nominal rates will have to stay low, you may want to hold those bonds in the portfolio and not give up the rate exposure. There is no bias to higher rates but an extended period that may actually see lower rates.

The arguments of what is the neutral rate will dominate thinking in the market for at least the rest of the year.