The world's largest bond fund began betting against the United States last month by taking short positions on its debt on expectations the nation's shaky finances will drive interest rates higher and imperil its triple-A rating.
Bill Gross, PIMCO's oft-quoted co-chief investment officer, in January warned that "mindless" U.S. deficit spending could result in higher inflation and a weaker dollar.
He has also been raising alarms about a lack of buyers for Treasuries once the Federal Reserve ends its own bond purchase program, also known as quantitative easing, in June.
The portion of PIMCO's $236 billion Total Return Fund held in long-term U.S. government debt, including U.S. Treasuries, declined to "minus 3" percent in March from zero in February and 12 percent in January, according to PIMCO's website (www.pimco.com).
"They are one of the largest investors in the Treasury market, so yes, it is significant," said Gary Pollack, a portfolio manager with Deutsche Bank Private Wealth Management in New York.
"They have the ability to move the market, that is something that makes me a little nervous."
Investors in exchange-traded funds and futures have mirrored the PIMCO trend in recent weeks.
PIMCO expects the lingering U.S. budget deficit and the Fed's easy monetary policy will fuel faster inflation and hurt the dollar.
Gross' shorting of Treasuries in March preceded Washington's narrowly averting a government shutdown after Democrats and Republicans agreed late on Friday to cut $38 billion in spending for the fiscal year.
The 11th-hour compromise probably had little impact on the investment strategies of Gross, who said in an April newsletter that the U.S. government was "out-Greeking the Greeks," a reference to Greece's out-sized government debt that forced the country to ask for a bailout.
"We are smelling $1 trillion deficits as far as the nose can sniff" if the government fails to address the biggest entitlement programs: Medicare, Medicaid and Social Security, Gross said in his outlook.
Investors have pulled money from PIMCO's Total Return Fund, which registered $1.59 billion of outflows last month, according to Lipper. That was the fifth straight month of outflows, the longest streak of net redemptions since Lipper began tracking the data in 2004, totaling $18.05 billion of withdrawals.
No comments:
Post a Comment