Worlds Largest Bond Company "Pimco" Sold All of its US Bonds

[KissMy]

Pimco is the Worlds Largest Bond Company. Pimco Sold All of its US Bonds.

PIMCO sells off all its U.S. debt

The world's largest bond fund has sold off all its U.S. treasury bonds. Analysts say that despite the sale, PIMCO founder Bill Gross is still optimistic.

Pimco sells US Treasuries ahead of QE3

Pimco, manager of the world’s largest bond fund, is selling US Treasuries in the expectation that a fresh helping of economic stimulus from the Federal Reserve will have little impact.

 

[Norman]

I assume that the FED was the buyer of it..

Or are there still other buyers - this must have been the last one.


But why are US bonds rated AAA instead of F garbage?

 

[skeptic]

HEIDI MOORE: Good morning Jeremy.

HOBSON: How significant is it that PIMCO is getting rid of its U.S. bonds?

MOORE: It's absolutely not the worst thing in the world. I think this shows that treasuries are absolutely at the top of their price, right? So the Federal Reserve has been buying up treasuries and about a trillion dollars-worth actually. So they're very expensive right now. And Bill Gross has been complaining about that for months and months, so from his perspective, he's selling them when he can get the best price. But it's not dire for the U.S. economy.

GUY LEBAS: Typically government bonds do well when the economy is poor. So by selling government bonds, Bill Gross is implicitly saying, "Hey, we expect conditions to improve a little bit."

Exactly. So what that really tells us right now is that, yes we may be in for some rough patches with inflation and so on, but really, if you take the money out of treasury bonds, you have to put it somewhere else, which is probably in company bonds. Which again, shows faith in the fact that we're going to have some resilience from the corporate sector.

HOBSON: And Heidi, I should say that was Guy LaBas of Janney Montgomery Scott. I'd recognize that voice anywhere, and you are Marketplace New York Bureau Chief Heidi Moore, thanks so much.

MOORE: Thank you.

Despite the fact that the OPs article claims that this is a good thing, that it indicates that PIMCO foresses what can only be called a recovery and a bull market on the very near horizon.....despite all of that it is extremely odd for a major bond player to liquidate ALL of their US bonds.

I mean think about it, CENTRAL BANKS worldwide use US bonds as their primary reserves. They have been "good as gold" for 65 years. They are the most trusted and safest asset in the world.

Why, how could a major bond speculator, the world's largest, divest entirely? That's not business as usual. Something is up.

I suspect what is up is that Fed is paying a LOT more for bonds than they are worth. Or PIMCO foresees a dramatic rate of inflation which sucks the value out of bonds.

But if that happens what bonds will fare better than Treasury bonds?

BTW is there a derivatives market that allows you hedge against loses on US bonds?

 

[william the wie]

There are quite a few derivative markets for treasuries but it is not a market I normally deal in. My wife handles cash, bonds and real estate while I handle derivatives, equities and precious metals but until maybe a week before QE II ends in June I am not going anywhere near bond derivatives. I would strongly advise studying up on option strategies and avoiding the futures contracts if you do dive in but that's just me and how I tend to do things.

 

[skeptic]

If such a market exists, one in which PIMCO could hedge their bets against losses on US bonds, why would they divest entirely.

 

[william the wie]

If such a market exists, one in which PIMCO could hedge their bets against losses on US bonds, why would they divest entirely.

There are various limits to how much derivatives you can own, maximum daily prices move limits and probably others I am ignorant of. This does not affect me or presumably you but if you are hedging millions it can be a bother, if you are hedging billions it is a bother and if you are running a trillion dollar fund don't even think about it.

 

[skeptic]

I sadly call bullshit. All that is required is a counter party willing to sign the other end of a voluntary agreement.

I am not yet aware that any kind of clearing house exists for currency swaps or inflation hedging swaps (which might be one route PIMCO could take to insure against hyperinflation robbing them of returns) or other derivatives. There are major banks who tend to be the only players big enough to engage in really large scale derivatives trade. I am not yet aware of any regulation that ties their hands.

 

[Zander]

Bill Gross has been the boy-genius for decades in the bond market so whatever he does will have ramifications, especially with other bond fund managers. But to keep things in perspective- As large as PIMCO is, they still only hold a tiny percentage of the overall Treasury Bond market.

PS- this bet wouldn't have paid off in Japan 15 years ago, when bonds there looked equally overvalued.

 

[william the wie]

I sadly call bullshit. All that is required is a counter party willing to sign the other end of a voluntary agreement.

I am not yet aware that any kind of clearing house exists for currency swaps or inflation hedging swaps (which might be one route PIMCO could take to insure against hyperinflation robbing them of returns) or other derivatives. There are major banks who tend to be the only players big enough to engage in really large scale derivatives trade. I am not yet aware of any regulation that ties their hands.

A) No one in their right mind is going to be counter-party to Gross on anything. He couldn't even get anyone to write him a CDS on mortgages in 2005 when he tried to launch a fund for that. Paulson, Barry, Lippman and the other big bears in the mortgage market, no problem but Bill Gross? You don't bet against a guy with a Trillion dollars under management unless you get independent verification from an atheist that words of fire appeared in the sky and said it was cool for you to do so.

B) There are standard futures contracts for US bonds and they are subject to the restrictions mentioned. Call your broker and ask about how much margin you need for those contracts plus any other restrictions on those hedges.

 

[skeptic]

A) No one in their right mind is going to be counter-party to Gross on anything. He couldn't even get anyone to write him a CDS on mortgages in 2005 when he tried to launch a fund for that. Paulson, Barry, Lippman and the other big bears in the mortgage market, no problem but Bill Gross? You don't bet against a guy with a Trillion dollars under management unless you get independent verification from an atheist that words of fire appeared in the sky and said it was cool for you to do so.

You may be right.

 

[Douger]

I assume that the FED was the buyer of it..

Or are there still other buyers - this must have been the last one.


But why are US bonds rated AAA instead of F garbage?

Because the ones doing the rating were threatened with a dose of FreeDumb and DemoNcracy if the ratings were dropped.