Mohamed El-Erian, chief executive and co-chief investment officer at PIMCO, submits this guest post to FT Alphaville.
Note: an earlier post attributed to Mohamed was published in error. This was old copy. Apologies!
Every once in a while you get an almost perfect alignment between the trio of overall market performance, relative moves, and the news flow.
Monday morning proved to be one of these cases – shedding interesting light on immediate market drivers and how they interact. But the bigger market complexities and uncertainties – and, therefore, where legitimate differences of views exist – are impacted only marginally. As such, durability is an open question. Read more
Although huge, all conquering, dollar-scooping behemoths of asset management would also seem to work.
Towers Watson and Pensions & Investments have counted up money manager dollars world-wide, once again, and when it comes to size, passive investment products are (almost) the only game in town. Read more
1986: In a note headlined ‘Bond Wars’, Bill Gross lightheartedly suggests the Force is with PIMCO, much as it was with Luke Skywalker in the fictional Star Wars films.
(If inaccurately — Gross called the Force “really the intuition handed down to [Skywalker] through generations of previous starfighters”. Nah.)
2013: In a note headlined ‘Bond Wars’, Bill Gross says “PIMCO will not go down at the Somme.”
Really. Read more
Mohamed El-Erian, chief executive and co-chief investment officer at PIMCO, discusses recent market swings.
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Click to enlarge. Hat-tip to the FT’s Kerin Hope and Sigma TV:
Bill Gross has penned some very deep and meaningful thoughts in his latest note, which happens to include the following (rather creepy?) pic:
Here’s the gist of the piece for some caption-competition inspiration: Read more
NEW YORK, March 1 (Reuters) – Bill Gross, the co-CIO and co-founder of bond giant Pimco, said on Thursday that the decision by a major derivatives agency to not declare a credit event on the writedown of Greek sovereign debt sets a dangerous precedent.
We’re confused. Contrast: Read more
Pimco’s Total Return Fund, managed by Bill Gross, now holds Treasuries to the greatest extent since July 2010, departing from sharp cuts to its holdings in 2011, Bloomberg reports. Holdings of US government debt rose to 38 per cent last month from 30 per cent in December. The fund gained 2.13 per cent in January, beating almost all of its peers, according to Bloomberg data. Gross nevertheless faces rising doubts that the $250bn Total Return Fund has become too big to manage and too reliant on derivatives, says Reuters in a special report.
Pimco’s Bill Gross has increased his holdings of Treasuries to the highest level since July 2010, a year after banishing US government debt from the world’s biggest bond fund, reports Bloomberg. Mr Gross boosted the proportion of US government and Treasury debt in Pimco’s $250.5bn Total Return Fund in January to 38 percent from 30 per cent in December, according to a report placed on the company’s website. He raised mortgages to 50 per cent, the highest since June 2009, from 48 per cent in December.
Presented without comment:
Where do we go when we die?
We go back to where we came from
And where was that?
I don’t know, I can’t remember
Virginia Woolf, “The Hours” Read more
The US Treasury sold 10-year debt below a yield of 2 per cent for the first time on Wednesday, with investors locking up their money at low returns for the safety of owning government debt, the FT reports. The $21bn of new paper was sold at a yield of 1.90 per cent, the lowest level in the modern era, and inside last September’s auction yield of 2 per cent. Non-dealers bought 55 per cent of the sale and the bid-to-cover ratio of 3.29 times, a sign of demand for the paper, was the third highest on record. Pimco also disclosed on Thursday that Bill Gross had increased his holdings of Treasuries in the asset manager’s $244bn flagship fund for the third month in a row, to the highest level in over a year. The Total Return found now has a 30 per cent weighting in government debt, up from 23 per cent at the end of November.
Mohammed El-Erian has penned a few thoughts about Germany’s negative yielding bubill auction and indentifies — quite rightly — that there are major risks associated with this precedent.
Ultimately, as FT Alphaville has also argued, a negative yielding regime of this sort could bring about exactly the sort of voluntary capital destruction conditions that turned the 1930s crisis into a depression. Read more
Pimco’s flagship bond fund, the world’s largest, experienced annual outflows for the first time in its history in 2011, according to research group Morningstar. The FT reports the $240bn Total Return Fund run by Bill Gross had attracted fresh investor capital every year since its inception in 1987, and it success has played a central role in the growth of the asset manager based in Newport Beach, California. However, Mr Gross ranked behind more than two-thirds of his peers last year, following a high-profile bet that US government debt would fall in value. Investors pulled $1.4bn from the Total Return Fund in December, taking outflows for the year to $5bn, according to Morningstar. Since November 2010, Pimco has seen a net $13.7bn pulled from its flagship fund.
Mohamed El-Erian, chief executive and co-chief investment officer at PIMCO, responds to the outcome of the G20 Cannes summit.
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Bill Gross has made a big U-turn in the investment strategy of his $242bn fund after a high-profile bearish call on the US Treasury market backfired, the FT says. After largely exiting US bond markets in February on fears of a spike in inflation, the Pimco bond manager began reversing course in the summer. More recently, he has placed a big bet on lower long-term interest rates that radically shifts the composition of his fund. he move, revealed by Pimco this week, comes after a humbling year for a fund manager often feted for his investing acumen and influence on the bond market. His flagship fund has produced a return of just 1.9 per cent for its investors so far this year, leaving him ranked 552 out of his 604 peers according to Lipper, a research house.
Bill Gross has made a big U-turn in the investment strategy of his $242bn fund after a high-profile bearish call on the US Treasury market backfired, triggering deep underformance by the world’s largest bond fund, the FT reports. After largely exiting the US Treasury bond market in February on fears of a spike in inflation, the Pimco bond manager has reversed course, placing a big bet on lower long-term interest rates that radically shifts the composition of his fund. The move, revealed by Pimco this week, comes after a humbling year for a fund manager often feted for his investing acumen and influence on the bond market. His flagship fund has produced a return of just 1.9 per cent for its investors so far this year, leaving him ranked 552 out of his 604 peers according to Lipper, a research house. By comparison, the Barclays US aggregate bond index has returned investors 6.7 per cent year to date.
Bill Gross, manager of the world’s largest bond fund for Pimco, has admitted that it was a mistake to bet so heavily against the price of US government debt in an FT interview. Gross emptied his $244bn Total Return Fund of US government-related securities earlier this year in a high-profile call that has backfired as the bond market has rallied. As of Monday, Pimco’s flagship fund ranked 501th out of 589 bond funds in its category. See also FT Alphaville.
Mohamed El-Erian, chief executive and co-chief investment officer at PIMCO, responds to the Federal Reserve chairman’s speech at the Jackson Hole conference.
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There are literally a thousand notes in our inbox this Jackson-Hole Friday morning, going something like:
“Bernanke unlikely to pave the way for QE3“ Read more
Pimco has used this week’s fall in Italian bond prices to load up on the country’s debt from an underweight position, according to the fund’s head of fixed income portfolio management, says Reuters. The sell-off underrated Italy’s institutional strength and was exaggerated, Pimco said. Meanwhile the Total Return fund managed by Bill Gross upped holdings in US “government-related securities” in June for a second consecutive month, moving its overall position back to zero, says the FT. Gross had argued before the end of QE2 that yields were likely to rise.
Has Bill Gross ditched his “long-short-long position” on US Treasuries?
Pimco on Tuesday published the latest holdings of its flagship Total Return Fund. The statistics are accurate as of 30 June. They show that Gross has increased TRF holdings of Treasuries to 8 per cent from the 5 per cent listed at the end of May. Read more
Pimco has bested Morgan Stanley in opposing bets on the direction of 30-year Treasury inflation-protected securities, the WSJ reports. The loss for Morgan Stanley is a blow to its efforts to build a more active bond trading desk. Pimco bought up 30-year Tips, tapping into rising concern that low interest rate have stoked long-term US inflation. A contrasting bet on inflation rising in the short term and falling further out saw Morgan Stanley short 30-year Tips and buy nominal 30-year Treasuries, reversing the trade for five-year bonds. Falling oil prices eventually undid the trade in addition to Pimco applying pressure via 30-year Tips buying, sources said.
From the ranks of FT Alphaville’s own AAA-list comes Mohamed El-Erian with a post about the three phases of governments’ involvement in global markets since the crisis.
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You may remember Bill Gross’ sage advice to “buy cheap bonds” and his amphibious explainer:
All right fellow frogs, so we’re being repressed and shortchanged in order to allow Uncle Sam to balance its books. Whatta we gonna do about it? “Frogs of the world unite,” as Lenin might have said, and so here’s where I harken back to Mark Twain and my second lesser-told frog story. There was this other frog who instead of being tossed into a pot of hot water was left to cool its heels in a pitcher of cold milk. Unable to jump out, he churned and churned those frog legs until eventually the milk turned into butter and the hardened butter allowed him the platform to leap to froggy freedom! Well, let’s get churnin’, fellow frogs. Read more
Pimco’s Total Return Fund upped its stake in non-US debt in May, holding 10 per cent of its $234bn in the assets versus six per cent in April, Reuters reports. The fund also maintained a negative nine per cent position in a new category of “liquid rates”, including US dollar interest rate swaps and other derivatives. Bill Gross’ now notorious ‘Treasury short’ is really a short swaps position, a source told Reuters last week. The revised data reflect that Pimco continued to hold US government debt in May, Bloomberg reports, following criticism of Pimco’s transparency, the WSJ says.
Bill Gross lost billions of dollars after loading up on debt issued by Lehman Brothers in the years ahead of its bankruptcy in 2008, the WSJ says. Pimco’s $3.4bn-plus losses were revealed in investment disclosures filed to Lehman’s bankruptcy court. The fund bought at face value before the crisis, leaving it with $4.5bn in holdings when Lehman collapsed and the bonds’ prices fell to 6 cents on the dollar. Pimco crystallised the losses soon afterward, during a year that saw the fund post a 4.32 per cent return on bets that Treasury prices would rise. The Lehman bonds have since recovered to around 25 cents as creditors haggle over how to liquidate the bank.
US government debt notched up stronger gains in May than dollar-denominated private sector debt for the first time in six months, the FT says. The strong performance of Treasury debt flies in the face of the expectations of many investors, with big bond buyers such as Pimco reducing holdings of Treasuries on expectations of underperformance. Instead, yields on US government bonds have hit record lows for the year. On Wednesday, the benchmark 10-year US Treasury yield fell below 3 per cent for the first time since December. Meanwhile, FT Alphaville reports that Pimco’s Bill Gross is recommending investors ‘don’t buy expensive bonds’ in his latest allegory-riddled investment outlook.
Wednesday’s 38,000 rise in ADP employment is another unreliable yet unnerving data point for the US economy and seemed to be driving 10-year US Treasuries close to 3 per cent at pixel time.
The bear market for bonds might be coming but it’s sure taking its time. Read more
Pimco’s Total Return Fund has increased its short bet on debt related to the US government from 3 per cent to 4 per cent, Reuters reports. The move is small but indicates that Bill Gross has not swerved from going bearish on Treasuries on inflation concerns. despite a small rally in the market. Treasuries have returned 0.7 per cent so far in May, says Bloomberg. Pimco dropped its US government holdings to zero earlier this year, including in Treasuries, Treasury futures and options, Tips and agency debt. The fund has meanwhile also increased its cash holdings to 37 per cent in April from 31 per cent, the WSJ says.
Mohamed El-Erian, chief executive and co-chief investment officer at investment fund PIMCO responds to Sunday’s news that Osama bin Laden, was killed near the Pakistani capital of Islamabad following a “targeted operation” by US forces.
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