Pimco cuts bond exposure

February 15, 2011 01:11 PM

The Financial Times reported on Tuesday that Pimco significantly cut its exposure to U.S. Treasuries in its Total Return Fund, the world’s largest bond fund. According to the story Pimco cut the funds exposure to 12% in January from 22% in December and 33% on Sept. 30.

Not sure what the significance is other than to confirm that Bill Gross is a good trader as Treasuries have dropped precipitously since August.

Oddly enough that is when Federal Reserve Chairman telegraphed his decision to launch a second round of quantitative easing. The Fed announced in November it would purchase $600 in U.S. Treasuries. That is a big headwind to sell into.

When we spoke with Pimco CEO and Co-CIO Mohamed El-Erian for our January issue he would not say if he thought the long-term bull market in Treasuries was over but did say, “Given how far yields have come down during the last 20 years, there is no longer the same room for U.S. Treasuries to rally.”

And Pimco had already announced it is moving into the equity space. El-Erian said they were moving in this direction,  “because to be relevant you need to be in a space that contributes to an overall solution.”

 Apparently that solution includes fewer U.S. Treasuries.

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.