PIMCO bets against U.S. government debt

[TomCADem]

Source: Reuters

NEW YORK (Reuters) - 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.


Read more: http://finance.yahoo.com/news/PIMCO-goes-short-US-rb-3790514655.html?x=0

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On the one hand, PIMCOL's Gross is a bit more serious than Glenn Beck pumping gold. However, the fact that PIMCO has substantial short positions on U.S. Treasuries presents a real conflict of interest when it comes to their comments. Of course, they are going to try to cheer for inflation so that they can profit on their short positions sort of like Glenn Beck pumping up the specter of inflation while acting as the spokesman for a gold company.

If PIMCO was not so outspoken when trashing Treasuries, then I would take them more seriously.

[dkf]

1. Pimco often goes short certain bond classes.

That is normal for them. It just so happens that now he is negative treasuries.

[notadmblnd]

2. doesn't that go beyond speculating?

Isn't it plain out manipulation?

[melm00se]

5. not really

PIMCO is a publicly traded company so any major changes in it's investment strategy has to be made public and once it's public the CEO will be questioned and he has to voice his justification for risking his shareholders' money.

[MattSh]

3. There are three positions you can take...

if you choose to get involved with US government debt.

1. You bet on US government debt.
2. You stay neutral
3. You bet against US government debt.

If you are in the business of investing clients money, you will never make anything taking position #2. Therefore, if you are looking to make money for clients, you do 1 or 3, depending on current circumstances. And if betting on US government debt is legal, so should betting against it.

Number 3 does not cause inflation. Cheering for inflation does not cause inflation. Betting against US government debt does not cause inflation. Inflation is caused by monetary policy.

And taking short positions on US Treasuries and being honest about why they are doing it is a conflict of interest? Do you suggest they lie about why they are doing it?

[melm00se]

4. at the very least

he is putting his money where his mouth is.

that's darn sight better than most

[earthside]

7. I'm with Gross.

And I've put a chunk of my 401K where his mouth is, too.

[Roy Rolling]

6. well, duh

Interest rates are near zero at the Fed funds level, and at historically low levels on all bonds. With commodity prices significantly higher, interest rates will soon rise, too. FYI, bond PRICES move the opposite of INTEREST RATES. So if interest rates rise, the only place to be is in adjustable rate instruments like money market or short bonds.

Unless one agrees that the Federal Reserve's artificial support for bonds by buying them up (to drive rates down for banks, ie, more profit for big banks) can continue forever, being short US treasury bonds is the best way to make money in that market. I would not put my money to support the actions of greedy bankers and I suspect most DUers would agree.

[Hubert Flottz]

8. Why does PIMPCO hate Americans?

We need to export the Banksters to China and bring back the jobs.