While others were buying TSYs in the month of August on hopes of frontrunning the central printer, and expectations that Bernanke's NEW QE announcement will lead to even more flattening in the curve (even though as we explained there is only $650Bn in free 10-30 year private sector inventory available in the entire market), Bill Gross, via PIMCO's flagship Total Return Fund, was busy selling. So busy in fact that over $30 Billion in US paper was dumped to unwitting investors, resulting in the move wider by the 10 Year paper which at auction earlier today priced at a multi-month high yield. As a result at the end of August, PIMCO's total Treasury exposure was just 21% of total AUM, the lowest since August 2011. And what did Pimco do with the proceeds? Nothing - it merely satisfied its margin cash position, which plunged from -18% to -6%.
Why did PIMCO sell? Fears of inflation, as can be seen in the attached chart of holdings duration, which dropped across the board, sending the TRF effective duration to the lowest it has been since May 2011, ot 4.21 years.