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Pimco Fund Stung By Selloff in Bonds

edited June 2013 in Fund Discussions

If you cannot read the article Google the title: Pimco Fund Stung By Selloff in Bonds

Here is the Google Search Link:

Some quotations if you fail to read the whole article:

The monthlong selloff in U.S. Treasury bonds is pushing the Pimco Total Return fund run by Bill Gross of Pacific Investment Management Co. toward its worst monthly loss since the financial crisis.

The $292.9 billion fund, the world's largest bond fund, has posted a negative return of 1.9% through May 30. That compares with a loss of 1.62% from the Barclays U.S. Aggregate Bond Index, according to data from fund tracker Morningstar.

The fund is on pace for its biggest monthly loss since September 2008, and ranked 159 out of 174 intermediate-term bond funds tracked by fund tracker Lipper.

Mr. Gross boosted holdings of Treasurys in April to the highest level in over a year, betting that monetary stimulus from the Fed and the Bank of Japan would keep bond yields low.

The strategy worked well in April. The 10-year Treasury note's price rallied and the yield dropped about 17 basis points, or hundredths of a percentage point, for the month. Mr. Gross's fund posted a return of 1.18% in April, beating 1.01% from the benchmark index.

The tide turned against Mr. Gross in May.


  • A related article from Reuters:

    Pimco, Vanguard hit by selloff in U.S. government debt
  • Thanks so much, Investor, for your link and synopsis. What is your opinion about this drop...fortelling the future of many intermediate and other bond funds?

  • Reply to @Investor: This is not the first blow-up with Bill Gross's big bet on various bond sector. The downside protection from the derivatives in this fund does not help much either. To complicate the matter further there is little cushion in this low yield environment.
  • edited June 2013
    Reply to @CathyG: Good question. I do not have a crystal ball so take my evaluation with a grain of salt.

    I personally think the returns for bonds is likely to be limited going on but again I did not expect bonds to return as much as it did in 2012 either. Now the yields are even lower, there is very very limited potential for capital appreciation. Even bond heavy fund houses are trying to establish other funds for the eventuality that one day bonds will lose money and investors will head for the exits. Gundluch started some equity funds. Gross recently tweeted that bull market in bonds ended April 30 and PIMCO has other funds to offer to clients.

    We had a bond selloff because Fed participants just discussed the conditions of tapering the bond purchases. I do not expect any major policy change for the rest of 2013 while inflation is much below the Fed target and unemployment is higher than Fed target and there is fiscal drag thanks to congress which is not rowing in the same direction. A few days ago I posted projections of unemployment rate and it is pointing to sometime in 2014. This might be the usual summer volatility after a good run YTD so it may settle down.

    If you are uncomfortable by these movements than move to shorter duration bonds or cash but you will have to accept lower income.

    Also, take a look at the following blog. It might help form your opinion:
  • Reply to @Investor: Very useful comment indeed from this blog. I have been following this blog since you brought it to MFO attention.
  • Even RNDLX is down in May. Surprising actually. The stock holding should have offsetted the decline.
  • RNDLX does not have equity holding. All it holds are fixed income asset.
  • Reply to @teapot:My bad. Was confusing with another fund,
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