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Pimco Loses Enthusiasm For German Bunds
In the beginning of the year, Pimco became the biggest supporter of German Bunds, actively adding over $20 billion worth of German sovereign securities to Pimco's flagship Total Return Fund. Yet in our monthly update of TRF holdings, we noticed a material rotation out of Bunds and back into USTs: an over $10 billion reduction in non-US developed holdings. In a symbolic Q&A with Pimco Managing Director Andrew Balls, we read the confirmation for the change in strategy in Newport Beach that brought about this defection from the continent. It appears that the fund which in many aspects is now the defacto market in most forms of fixed income (especially Build America: Pimco would just love if you could buy some Build America bonds... from them) has realized that as the European wave of uncertainty migrates further toward the core, it could become among the largest bag holders of a rapidly depreciation asset class. As Balls says: "given the potential for eurozone governments or the ECB to
be drawn deeper and deeper into providing support, we do not see German
Bunds as offering significant advantages over the secular horizon
compared with U.S. Treasuries." The time may be approaching when Nic Lenoir's thesis of shorting the Bunds may finally come to a profitable fruition.
Relevant section from Balls Q&A:
Q. How does PIMCO’s secular outlook for the eurozone translate into investment strategy? Given the range of possible outcomes, we remain cautious on European We will look both within and beyond Europe for higher-quality
A.
As we’ve stressed, the global economy is on a bumpy journey to a New
Normal – an uneven road to an uncertain destination, characterized by
the likelihood of broader distribution and fatter tails. Nowhere is
this clearer than in the case of the eurozone.
sovereign risk. The government interventions may eventually be
successful in bailing in private sector investors. But because these
interventions have been focused on liquidity provision and also given
the multiple challenges and the wide range of possible outcomes, we
think it is prudent to remain underweight European sovereign risk and
to wait for evidence that countries with stressed debt dynamics can
deliver on fiscal consolidation without undermining growth in their
economies.
securities where we think we can achieve similar or superior
risk-adjusted returns. We remain positive on core duration and German
bunds. But given the potential for eurozone governments or the ECB to
be drawn deeper and deeper into providing support, we do not see German
bunds as offering significant advantages over the secular horizon
compared with U.S. Treasuries.
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Basicly they hate the Euro.
As Bill Gross has Bernanke on speed-dial doubtless he is selling his bunds to the fed at above market prices. Fascism, it's what's for dinner at Pimpco.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aenFYHtqk5Gw&pos=3
The market’s advocates of fiscal discipline are being placated as Bernanke keeps benchmark interest rates at a record low, allowing them to profit from the gap between short- and long-term yields with inflation at a four-decade low. Bill Gross, the manager of the world’s biggest bond fund, said as recently as March that “bonds have seen their best days.” On June 4, he called Treasuries “attractive.”
“Central banks by keeping rates near zero have basically covered the bond vigilantes in duct tape,” said Edward Yardeni, who coined the term in 1983 for investors who protest inflationary monetary or fiscal policies by selling bonds and driving up government borrowing costs.
Bond vigilantees covered in duct tape. Wow.
German insurer Allianz owns Pimco.
Do they know something?
who can blame 'em? All of the pretty girls have left the dance - if you can't be with the one you love, love the one you're with...
Andrew Balls, what a fucking cool name.