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Pimco Total Return Fund

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  Back in the Goode Olde Days, people spent uncounted hours trying to forecast the future. If they had a cat, they could try felidomancy, which is the art of using cats to predict the future. If they had feet, they could try pedomancy.

Nowadays, people indulge in fedomancy, which is the art of predicting interest rates by observing the Federal Reserve Board. It's a difficult practice.

John Wagooner,
USA Today

Pimco Total Return fund is probably the most famous bond fund in existence. And that represents the danger. After certain size any actively managed fond became essentially index fund with active management fees.

It was founded in 1997 and until recently was managed by Bill Gross. Several year ago Bill Gross was ousted in 2014 but the core team stayed the same. As of January 2013 Total Return Fund had $285.6 billions under management. Investors began pulling money here more than a year before Bill Gross left the firm in 2014. Now it is $68 billion. Still very large.  It uses derivatives to compensate for the size.  

By April 14, 2020, the fund's institutional shares has a year-to-date gain of 3.3%, placing it in the best quartile of its intermediate core-plus Morningstar Category of bond funds.

Total Return % 2011   2012 2013 2014 2015 2016 2017 2018 2019 2020 YTD
Fund 4.16   10.36 -1.92 4.69 0.73 2.60 5.13 -0.26 8.26 8.88 -2.65
+/- Category -2.11   2.60 -1.02 -0.73 1.18 -1.26 0.86 0.35 -0.68 0.82 -0.49
+/- Index -3.24   4.82 -0.58 -0.87 0.30 -1.31 1.04 -0.01 -1.03 1.30 0.00
Percentile Rank 89   12 78 73 11 82 17 30 73 34 72
# of Funds in Cat. 456   467 500 510 528 561 597 617 613 602 606

10 year return closely matched this bond fund category.  Holding are typical for this category

Top 10 hoding; 59.31% of Total Portfolio

PIMCO SHORT TM FLT NAV PO                  17.67%
PIMCO ABS and S/T Investmts Port Insti      9.58%
Umbs 30yr 2 03/01/2051 #t                   6.37%
Umbs 30yr 2.5 02/01/2051#                   5.14%
Umbs 30yr 3 02/01/2051 #t                   5.12%
Umbs 30yr 2.5 03/01/2051                    4.25%
United States Treasury Bonds                3.73%
United States Treasury Bonds                3.13%
Umbs 30yr 2.5 01/01/2051                    2.22%
PIMCO Hi Yld & S/T Investmts Port Insti     2.10%

A related ETF (BOND) was launched without the use of derivative securities to gain exposure to bonds. Consequently, this put the two fund versions on opposite sides of the spectrum regarding portfolio make-up and total number of holdings.

As for ETF, please also note that despite shortened duration, at the slightest sign of higher rates there will be panic at the exit gates! So the fund viaoltily will always be much highr then for PPTRX

Bill Gross was  well known for his monthly messages to shareholders. They are beautifully written but the career of Bill Gross as a forecaster was much worse then his career as bond manager. 

One thing to understand that bond market is now so highly regulated that it is a market only for investment plankton like 401K investors.  For large fish future actions of FED and general direction of FED policy are probably the main guiding information and the key factor of success in this "pseudo market".  And no matter what is your opinion about Bill Gross he was an insider and at one point he employed Alan Greenspan as an advisor to this fund ;-).

In other words it makes sense to own Pimco Total Return, but excessive zeal in accumulating it at high prices might hurt badly.  Which is actually true for any bond fund.

Warren Buffet suggested that the situation with bond is going to worsens and his recommendation was  "don't try to catch a falling knife". He might be talking his book trying to lure 401K lemmings into stocks at high valuations,  but 10 year yield recently was really abnormal, so those investors who continue to hold intermediate duration bond  will be hurt. 

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[Mar 07, 2021] PIMCO Total Return Instl (PTTRX) Quote - Morningstar

NAV 10.28 ( -0.08 %)
Total Assets 68.8 Bil
Adj. Expense Ratio 0.460%
Expense Ratio 0.700%
Fee Level Average
Longest Manager Tenure 6.44 years
Category: Intermediate Core-Plus Bond
Min. Initial Investment 1,000,000
TTM Yield 2.35%
Effective Duration 5.40 years

[Nov 22, 2015] Pimco Total Return Fund Redemptions Reach 30 Consecutive Months

Redemptions at the Pimco Total Return Fund reached 30 straight months in October as the former world's largest mutual fund fell to $93.7 billion in assets.

The Pimco Income Fund continues to head in the other direction, surpassing $50 billion in assets for the first time as group Chief Investment Officer Daniel Ivascyn's pool has attracted $11.5 billion in net new cash this year, according to Newport Beach, California-based Pacific Investment Management Co.

"The Income Fund benefited from defensive positioning in the energy sectors and the recovery in the higher quality segments of the emerging markets," Ivascyn said.

Total Return is less than a third of its peak size as investors pulled $1.6 billion from the fund in October, the smallest monthly outflow since July 2014, two months before Pimco's ouster of co-founder Bill Gross prompted a rush to the exits. The fund peaked at about $293 billion in April 2013, shortly before Federal Reserve policy makers sparked the so-called taper tantrum by threatening to reduce their investments in Treasuries and mortgage-backed securities, prompting investors to flee bonds.

The Total Return Fund returned 1 percent this year through Nov. 2, outperforming 74 percent of its peers, according to data compiled by Bloomberg.

'Extreme Worry'

"We took advantage of market pricing that reflected extreme worry about spillovers from China and global deflation in September," said Scott Mather, a manager on Total Return and Pimco's CIO for core strategies. "As markets calmed and reassessed the probabilities with new data in October, our positions in corporate credit, mortgages and Treasuries benefited."

The $51 billion Pimco Income Fund has returned 3.6 percent in 2015, beating 98 percent of peers. It ranks in the 99th percentile for the three- and five-year periods.

While Pimco Total Return has lost assets, investors have added money to competitors such as TCW's Metropolitan West Total Return Bond Fund and the DoubleLine Total Return Bond Fund. DoubleLine's fund has returned 2.6 percent this year, outperforming 93 percent of peers, while the MetWest fund is up 0.6 percent, besting 45 percent of peers.

[Mar 19, 2015] The Central Banks Will Not Be Able to Control This by Phoenix Capital Research

Mar 19, 2015 | Zero Hedge

The biggest issue facing the financial system today is the US Dollar rally.

The Fed and other Central Banks are trying to maintain the illusion that they have everything in control by talking about interest rates, but the reality is that the US Dollar carry trade is ABOVE $9 trillion in size. That is almost as big as ALL of the money printing that occurred between 2009 and 2013.

And it's imploding as we write this.

Globally, the world is awash in borrowed money… most of it in US Dollars. The US Dollar carry trade is north of $9 trillion… literally than the economies of Germany and Japan COMBINED.

When you BORROW in US Dollars you are effectively SHORTING the US Dollar. So when the US Dollar rallies… you have to cover your SHORT or you blow up.

And the US Dollar has been rallying… HARD. Indeed, the move that began in July 2014 is already larger par in scope with that which occurred during the 2008 meltdown.

Moreover, this move has occurred with little to no rest. The US Dollar barely corrected 2% after rallying a stunning 16+% in a matter of months before beginning its next leg up.

You only get these sorts of moves when the stuff hits the fan. CNBC and the others are babbling about the Fed's FOMC changes, but all of that is just a distraction from the fact that a $9+ trillion carry trade, arguably the largest carry trade in history, has begun to blow up.

Rate hikes, QE, all of this stuff is minor in comparison to the carnage the US Dollar is having on the financial system. Take a look at the impact it's having on emerging market currencies.

... ... ...

[Mar 18, 2015] Here Is Why The Fed Can't Hike Rates By Even 0.25%

Mar 18, 2015 | Zero Hedge
There was a time when Zoltan Poszar was the most important person at the Fed (and Treasury), because he was likely the only person in the government's employ who grasped the enormity and complexity of the then-$30 or so trillion US shadow banking system. A quick refresh of his bio from the Institute for New Economic Thinking:

Mr. Pozsar has been deeply involved in the response to the global financial crisis and the ensuing policy debate. He joined the Federal Reserve Bank of New York in August 2008 in charge of market intelligence for securitized credit markets and served as point person on market developments for senior Federal Reserve, U.S. Treasury and White House officials throughout the crisis; played an instrumental role in building the TALF to backstop the ABS market; and pioneered the mapping of the shadow banking system which inspired the FSB's effort to monitor and regulate shadow banking globally. Prior to Credit Suisse, Mr. Pozsar was a senior adviser to the U.S. Department of the Treasury, where he advised the Office of Debt Management and the Office of Financial Research, and served as Treasury's liaison to the FSB on matters of financial innovation. He also worked with the Federal Reserve Board on improving the U.S. Flow of Funds Accounts.

While Zoltan is currently working in the private sector at Credit Suisse, he is perhaps best known for laying out, back in 2009, the full topographical map of the US shadow banking system in all its flow of assets (or is that contra-assets when it is a repo) beauty.

Which is also why we bring him up, because in a much welcome follow up to his previous work title "A Macro View of Shadow Banking" which we will discuss further in the coming days because it is not only Zoltan's shadow banking magnum opus and must read for anyone who wants to get up to speed with all the latest development in the unregulated shadow banking space, but because Poszar also provides perhaps what is the most important chart which explains why the Fed is so very terrified of even the smallest possible incremental rate hike of 0.25%.

Specifically, we look at Poszar's findings about the implied leverage within the fixed income asset space in America's just a little levered buyside community. This is what he says:

Although no precise measures are available, the presence of leverage among hedge funds with credit and fixed income strategies has been recognized since the LTCM crisis (see Figure 21), as is leverage in separate accounts in the asset management complex.

While hedge funds and separate accounts are allowed to use leverage liberally – in fact, leverage is the sine qua non of these investment vehicles – it is widely underappreciated that bond mutual funds that are typically thought of as unlevered and long-only also have considerable room to use leverage.

The extent to which this room to use leverage is utilized is up to bond portfolio managers to decide, and it is not uncommon for the largest bond funds to maximize the leverage they may bear in their portfolio within the limits allowed by the Investment Company Act of 1940, and the SEC's interpretation of the portfolio leverage and concentration incurred through the use of derivatives.

However, the creep of leverage into what are traditionally thought of as long-only bond funds was missed by the mainstream economics literature and textbooks entirely. For example, recent works that identify asset managers as the core intermediaries behind the "second phase of global liquidity" focus solely on indirect forms of leverage (FX mismatches) embedded in bond portfolios through holdings of dollar-denominated emerging market sovereign and corporate bonds (see Shin, 2013).

Other works state even more explicitly the widely-held assumption that fixed income mutual funds are unlevered, and analyze episodes of market volatility induced by redemptions without any regard to how direct forms of leverage embedded in fixed income mutual funds may amplify volatility during periods of rising redemptions (see for example Feroli, Kashyap, Schoenholtz and Shin, 2014, Chapter 1 of the International Monetary Fund's October 2014 Global Financial Stability Report, Chapter 6 of the BIS' 84th Annual Report, and Brown, Dattels and Frieda, 2014 (forthcoming)).

But all of these views sit uncomfortably with the hard evidence presented above, and recent revelations about "perceived" alphas (see Gross, 2014b) and price action in the interest rate derivative markets amidst soaring redemptions from the largest bond portfolio in the global financial ecosystem – the PIMCO Total Return Fund (see Mackenzie and Meyer, 2014). More concretely, a look at the portfolio of this specific fund provides good examples of the forms of leverage discussed above.


More broadly, the above example demonstrates the evolution of the traditional core product of the asset management industry – long-only, relative-return funds – as it came under pressure from two directions: from hedge funds, offering absolute return strategies, and from passive index-replication products in the form of low-cost exchange traded funds (ETFs). Core-satellite investment mandates became the trend, with hedge funds providing alpha and index-replication vehicles delivering beta at low cost. Traditional asset managers responded to this challenge a number of ways: some by launching their own, internal hedge funds, and some by incorporating into their core products many of the alternative investment techniques used by the hedge funds. These industry trends were the sources of competitive push that drove the above-mentioned creep of leverage into the industry's traditional, long-only, relative-return bond funds (and hence the rise of levered betas), all designed to stem the flow of assets to the hedge fund competition and command higher fees as the profitability of traditional core products was squeezed (see Bank of New York, 2011 as well as Haldane, 2014).

And visually:

In short, what Poszar is saying is that in a world in which the traditional broker-dealers and banks have indeed reduced leverage and instead use $2.5 trillion in Fed reserves as fungible collateral against which to buy credit derivatives (for example as in the case of JPM's CIO office and its attempt to corner the IG9 market) the buyside community, which as we have long discussed has largely avoided equities due to fears of a spectacular market implosion (and certainly minimized levered exposure in the space with the exception of several prominent HFT participants) has instead been forced to chase after fixed income products. And chase with leverage that would make one's head spin as can be seen in the outlier chart above.

And while Poszar may be quite correct in stating that most have missed the leverage creep he observes above...

Perhaps the key reasons why economists have missed the creep of leverage into the traditionally long-only world of fixed income mutual funds are the conceptual gaps in the way in which the U.S. Financial Accounts (formerly the Flow of Funds) depict the global financial ecosystem, and by extension, the limited mental map it gives to economists who use it to understand asset prices.

... one entity that does understand all this and grasps the momentuous implications of even the smallest quantum of interest rate increase, is the entity where Poszar previously worked: the US Treasury and the Federal Reserve itself.

And so, the next time someone asks "why is Yellen so terrified of even the smallest possible rate hike", show them this chart above and explain that the Fed vividly remembers what heppened when LTCM blew up. What the Fed doesn't want, is not one but one thousand LTCMs going off at exactly the same time in what is now the world's most levered trade...


So the dollar isnt going up because of America's sound fundamentals? But rather because its newly minted QE is being used to make leveraged, unhedged gambling bets in derivatives markets (ie. CDOs that cant be paid by counter parties like AIG to losers like MF Global) by primary dealers as repo collateral instead of being released into the economy and increasinging the money velocity?

So the Fed is lying when they say they will soon raise interest rates? Even though raising interest rates .25 % would add 100s of billions in interest to the over 18 trillion dollar debt?

So there is a quadrillion dollar hidden -shadow- banking system beyond the site of Congress and investors at large? That is potentially worse than a 1000 Lehmans?

So then shouldn't we be using our overvalued dollars to buy suppressed under valued gold


I found this helpful:


Crap... It's just like the movie SPEED with Sandra Bullock and Keanu Reeves back in '94 when a former banker rigs a bus loaded with muppets to explode unless he get's paid a million$$ ransom.

If Yellen let's the speed fall below 50 MPH then the bomb goes off and everyone dies.

Meanwhile she's desperately looking for an off-ramp called ECONOMIC GROWTH but it ain't there... and now she's running out of road and there's a hole in her gas tank...


we look at Poszar's findings about the implied leverage within the fixed income asset space

Do you have any idea what the avg rate on the 10 year bond is?

Of course it is about leverage, it has always been about leverage. There are two ways for control freaks to fight a deleveraging: 1) print money, and 2) re-lever. And since the fixed income markets are by far the largest, guess where the leverage (mostly in the form of swaps) was placed?

And in order to keep this leverage from blowing up, interest rates have to stay zero, forever. This is not rocket science. Neither, however, is it reality, but that is what they are trying to do.


1. Average all-time historical return is 0 or negative. Inflation beyond a few tenths of a percent only became a standard phenomenon during the industrial age. This is one of the key points of metallism and one of the reasons monetarists and chartalists (more like charlatans) hate metallism.

2. Savers should not have their money in the bank (or brokerage) if they don't want the banks to use it.

To my knowledge the long-run average coupon on government debt in all places was 3%-5% or less, it was the preferred asset class (in addition to farmland, of course) of the rentier parasites of recent centuries. This high rate is part of why we got national income taxes; careful what you wish for.

There is no point in calling fiat currency stolen, any more than there is in calling a unicorn stolen. It is all debt, not money. The theft begins as soon as it is loaned into existence. Beyond that, the interest means it by nature requires theft from the future.

aVileRat's picture

Fun fact,

The mean 'seed' fund runs at around 120% gross and you would think one would do a 'hedged' book, you know, at best 100% leverage, maybe 120% gross in extreme periods right ?

Saw a fund yesterday, small, about XYZ MM under management, running on 197% gross and 300% net. Yes, you are reading that correct. US Institutional qualified, with more than 10 accounts.

Now either I'm getting really old, or my idea of risk management is totally shot to shit at this stage in my career, but this guy was balls deep in fixed credit and swaps. Refused to give over his VaR metrics, or altman score, but had a stupidly great sharpe ratio. Some days, when I think about how some junk companies inflate by 20% a day, I think about this guy, and his fund.

And I wonder, what if this is the new normal. If Bill, Leon, George.... old crew is working away, and there are a whole bunch of wingnuts like this ZYZ nutter who are chasing yield with every risk hedged to keep below your Prime guidebook, but in reality are running at ratios Myron Sholes would have shit himself at.

Just a food for thought.

Toten is 100% correct, risk free is a economic concept derived from post-war 1918 sov. growth rates vs. the real 400 years of economic history; While Case Shiller's often trot out CAPE model works great at predicting rate moves using smoothing, that whole thing assumes underlying growth conditions which are not normal; namely a baby boom, accretive fixed capital rates, technical revolutions every 5 to 10 years and monetary stability. Throw CAPE into some funky currency wars, like the 1750's with only 3 varables ? busted like TRIPS.

Fed policy is going to give stability, which we expected

Now the rest needs to come from the rest of the world. Arguably the US technocrats are more inclusive and forward looking than the fractionalized govts in Japan (no offense Abe!) so Fiscal policy, has a fighting chance of at least respecting the structural reforms required by US gov, lest major allies switch to RNB; creating the bi-material system Austrians badly want. Where RNB is the 'silver' and UST is the 'gold standard'.

If they fail to act, and US corps/US Trading partners will continue to plan outlays for tax management & accretive ROE's to optimize their USD purchasing power, and will invest abroad. Which is pretty much what happened when economic powers dropped gold or bi-standard switching the last time this happened; when the world had a band of iron to every corner of the globe.

In this scenario, US investors can certainly rely on price stability, but as Janet Yellen said in press scrum today: the world is responsible for their own portfolios and yield valuations. Fed does not promise a risk free rate, nor does it target a risk free rate; only inflation & job growth.

As ZH has spoke about ad nausum, job quality is shit, and projected tax planning & wage growth, when millennials hit 40 is going to be nowhere close to sustaining the AA rating of the USA, let alone its G8+7 trade allies. So until we see 57% of U-5 semi-attached workers actually get with something approaching post-war wage & family formation rates, achieving a 8% risk free world is beyond us. Which is where a Fiscal & technocratic solution comes into play; and requires a global coordinated effort which is inclusive of all the key countries. The alternative ? They'll just fuck off and hit up China, turning a blind eye to middle kingdom 2.0, which was a key behind the dead global growth post- 1 AD, and likely even pre-1AD given Chinas total inability to govern that cesspit since the Bronze Age.

In this scenario, I think back to that tool, and his reach for yield hyper-LTCM trading vehicle. When that martingale hits zilch, what happens to them? Will it matter at that point ? Will credit origination matter at all when NIRP becomes accepted as a cost of trade, and we simply trade in 1 oligarchy and swap in UST? where the UST becomes a scarce form of barter like gold was in 1500 ?

Will Primes and Institutional investors be able to tell the difference between technical and productive growth at that point ? Or will the fear of risk, or perhaps the lack of education on industry specific risk lead to a total lack of interest in exploration & moonshot capital ?

Fun fact, the cotton gin is thought to have been 'invented' in at least 5 instances in history, but it only was when some Jews with a some funny names decided to arb their trade float for a merchant capital fund. This was amid a raging stagflation enviroment, and it worked out well for us since 1680.

If we are staring down the barrel of another 40 year stagnation ecosystem (at least), and if we assume Washington/NATO gridlock extends as long as the Holy Roman Empire's decline; we could be in for a good long time of NIRP.

On an end note. ZH lobbied for 'healthy' deflation for 4 years, and now its happening. You cant have a rate hike, and price deflation at the same time. We are done with the Keynsian real time lab study, and now we're onto the Austrian study:

Austrians propose that Federal reserve money printing is the bane of all evil, and the Fed is the sole originator of all credit default which starts the busines cycle. The fed is now accomodative, and neutral, as 'the market' desired. Now its time for the Austrian system to prove money is all locked into one closed economic system; and fixed capital can thrive in a liquidity moderating system.

Our current economic model based on the 1929-1941 experiment proved flawed, so lets see what happens. Ball is in 'the market' and ZH's court to prove this works, in my view.

And for the little meth-Myrons out there, lets hope this NIRP works. If 92/95 happens (it still could with the natural move in rates down by currency flight to USD; esp if ECB is limit bound by QE assets), that is our best solution out. And Gold is at best, a marginal utility vehicle for wealth preservation; which makes Goldbugging a moot point if we're arguging (happily I might add) for creative wealth destruction to prosperity.


- Credit risk is a passing fad, they will flame out if growth is going to its pre-1880 level of stangation to -3% for most of Europe; without Antilla's creative destruction no less. Its about 10x worse today than when Rockstar did his very well done study on shadow risk, and how its warping leins & economic momentum.

- USA's trade partners will eventually conclude its a bad trade partner due how a strong dollar is killing both domestic wealth effects, and the USA's increasing protectionism, USA global policy becomes inert as the USA Dol & T's become a Giffen good

- Last time something barbaric happened, large debts and a useless Technocratic fiscal govt. had their way with the world, we ended up with a badly FUBAR Europe, and all 14 eras of Chinese society.

- Settle in, unless the last 2 generate something constructive; you are all fucked. But thats good for doom porn lovers.

- Yellen looks at the same shit as ZH. In fact, she straight up said she knows it just as well as TD1, and until you see the same numbers they do, which they do, and real time u-5 wages and job quality improves, forcasts changed, because Saudi Arabia had a Taper Tantrum, and while inflation is one part of the puzzle, data dependance is just as transparent as a post on ZH.

And to hike rates would bail out wall st. Pensions, at the further expense of 'the middle class', and pretty much the entire world. As predicted.


wake up! look at the jefferies numbers of the other day. it is nearly impossible for banks to make money under these conditions. sure they saw some MTM on their rates books back in '10/11/12, but the rest of "earnings" for years running has been from mark-to-fantasy, headcount reductions, buybacks, offshoring, and loss avoidance (delaying foreclosures and repossessions on NPLs). this the-Fed-is-saving-the-banksters meme, while popular, doesn't fit the observable realities. fed policy is--as tiny timmah geithner confessed--the best progressive economics in action.

it is direct monetary financing of our bloated federal government. when you see a person doing something most people infer the motivation for the action is the reward for the action. in the case of the fed we need to adjust our optics to understand they are doing things not to be rewarded but to avoid consequences (like the Dutch boy with his finger in the dike, no Yellen pun intended). what would happen if they allowed a return to market economics?

the federal government would have to fund its ever growing shortfall in the rates market. that would probably be possible at first, but the higher rates would slow the remains of the "economy", which would increase demand for services AND retard tax receipts, which would increase the funding shortfall, which would push up rates, which would choke the economy, which would...well, you get the picture. without the Fed, the overlevered federal candy machine would quickly tear itself apart.

I think the Fed is going to try to raise in order to re-set the shock absorbers before the coming sell off in order to maintain at least the illusion they can stimulate the economy. but it is too little, too late. we will quickly be back to the Fed protecting the politicos by trying to slow the collapse. (to keep this simple I have avoided the obvious asset-inflation scheme as a tool to keep large donors happy, but even analyzing that will bring you back to the same place: the Fed must protect the politicians or die trying.) this is the slow motion death rattle of America's nanny state.


This is a very popular view, but it is wrong. We are talking about fractions of a percent. Declining oil prices have given them an undeserved window, in which to begin normalization.

It's true there is no exit strategy. There never was. This is their one last chance to let market rates emerge without complete chaos. They are too stupid to take it. Unfortunately, the consequences will fall on us all.


The FED has over 4 Trillion on their balance sheets now compared to 852 billion in 11/08.. The US Government has over 17 Trillion dollars of debt compared to 9.23 Trillion in 11/08... need I say more? That is unless they don't have to pay interest> Were all Japanese now and if inflation forces the 0% interest Ponzi to raise interest rates you might just as well bring the whole herd of deer out Tyler because it will be carnage


9/11 Truth: Judges shocked by first time seeing video of WTC 7 collapse in Denmark court


"Magic" number 7

US is run by gangsters. Greatest criminal enterprise ever conceived in the history of man.


The hellicopters will come but they won't be dropping money.

Some folx ain't waitin till September..

coming to a theater near you.

Frankfurt (AFP) - Violent clashes between anti-capitalist protesters and German police left dozens injured and a trail of destruction in Germany's financial capital as the European Central Bank opened its new headquarters Wednesday.

Draghi, addressing some 100 invited guests at a low-key ceremony, rejected blame for the suffering brought by budget cuts and austerity policies amid the financial crisis in Europe.


um...those are europeans rising up against their masters. Not americans.

Americans are cattle and will never do so. At least white americans never will.


"There was a time when Zoltan Poszar was the most important person at the Fed (and Treasury), because he was likely the only person in the government's employ who grasped the enormity and complexity of the then-$30 or so trillion US shadow banking system."

The FedRes is NOT a part of the governmnet, but a PRIVATE branch of the PRIVATE Zionist banking cabal that owns and controls the DC US.

The FedRes only wants to comprehend the ramifications of their actions the same as a thief does. And like a thief, they wish to keep their loot, and to remain free to thieve more in the future.

The banksters need to repay us. Guillotine the Fed. Audit the heads.


LOL, the Federal Reserve can't raise rates.

Just BS the markets for months and later years.

The markets may have just figured it out.

[Dec 03, 2014] Fall of the Bond King How Gross Lost Empire as Pimco Cracked

Dec 03, 2014 | Bloomberg

Behind closed doors, the billionaire also opposed the firm's expansion into stocks and real estate, areas seen by others as crucial to position the firm as the bond rally on which Pimco's growth had been built showed signs of waning. In pushing for a return to a simpler business model, he questioned why the firm needed some of the executives it had hired.

By September, as Gross revived plans to fire Balls, 41, Pimco's new senior managers turned against him. Several of the firm's key executives offered to resign. When Gross proposed again to take a smaller role, give up management responsibilities and hand over his main fund to a successor by the end of 2015, Pimco executives were considering his ouster.

Rather than suffer the humiliation of being fired, Gross decided to walk away from the firm that he had started in 1971. A few hours later on that Friday morning, he was on a plane bound for Denver to join Janus Capital Group Inc. (JNS), the money manager run by his former general counsel and operating chief Richard Weil, 51.

... ... ...

Gross built Pimco with some of the best long-term investing track records, and was the face of the bond market with television appearances almost every day. Assets at the firm doubled between 2010 and 2013, making Gross one of the best-compensated money managers, with a bonus of about $290 million in 2013, a fortune even by Wall Street standards.

An Ohio native who graduated from Duke University with a psychology degree in 1966, Gross built a reputation unparalleled among mutual fund managers, with his main fund, the $162.8 billion Pimco Total Return (PTTRX), beating 96 percent of peers over 15 years, according to research firm Morningstar Inc. The fund has become a staple in the 401(k) retirement accounts of millions of Americans.

Vietnam Vet

His departure triggered a combined $60.5 billion in withdrawals in the past three months from Pimco Total Return, which at its peak in April 2013 was the world's largest mutual fund, with $293 billion. Assets in the fund have since shrunk by 44 percent.

Gross, who spent three years in the Navy and served in Vietnam, was obsessed with performance. When his flagship fund trailed 77 percent of peers in 2011, he apologized to clients, calling it a "stinker" of a year and reassuring them he hadn't lost his touch. After a rebound the next year, he examined his legacy in an investment outlook that said the careers of great investors were fueled by a credit expansion that may be ending, and that the real test of his investing prowess was yet to come.

"Am I a great investor?" he wrote in an April 2013 investment outlook. "No, not yet."

... ... ...

Four years after a Bloomberg Markets article in which Gross said that stock-market returns would beat bonds, the firm's equity business wasn't meeting expectations, having gathered less than $3 billion into its four main mutual funds.

Gross argued the push wasn't cost-efficient, that stocks and other assets were too expensive, that Pimco should retrench and didn't need the staff it had hired to diversify.

... ... ...

"In the case of Pimco, which always seemed like this monolithic really good organization, when you go behind the screen you can see that it was pretty messy," said Kurt Brouwer, chairman of Tiburon, California-based advisory firm Brouwer & Janachowski LLC, who has invested in Pimco funds since the 1980s.

"Money, big money, personal egos, differences of opinion, slights and disagreements built up over 10 or 15 years -- that's a pretty explosive combination."

[Oct 02, 2014] As PIMCO bleeds assets, Gross shows risk of star culture

Oct 02, 2014 | Reuters

Bill Gross' exit from Pimco has seen billions of dollars leave the fund group and even more value wiped off the share price of its parent company, offering a warning both to firms who rely on star managers and the investors who chase them.

Gross's flagship Pimco Total Return Fund lost money every month from May last year, totaling nearly $70 billion by the end of August, Lipper data shows. More money has left since he was escorted to the door of the firm he co-founded in 1971.

With much of a mutual or hedge fund firm's value tied up in the brain power of its employees, as opposed to bricks, mortar and other hard assets, the loss of an important employee - known in the trade as "key man risk" - exposes the firm to asset flight which can even force it to sell holdings at a loss.

[Sep 26, 2014] Bond guru Bill Gross leaves Pimco, joins Janus Capital

Bill Gross, founder of bond giant Pimco and a guru in the fixed-income business, has left his post as chief investment officer at the company and joined mutual fund management firm Janus Capital, a move that follows record outflows last year and his clash with other top executives.

In an announcement released Friday morning by Janus, Gross said he left to focus less on managerial and operational duties and more on his chief passion, investing in bonds. But his departure, coming eight months after his top deputy, Mohamed El-Erian stepped down, will trigger speculation among bond market watchers about leadership uncertainties and other reported troubles at the world's largest bond firm.

UPDATE: PIMCO names Daniel Ivascyn to replace Gross

In a statement, Pimco CEO Douglas Hodge hinted that Gross' departure was inevitable. "While we are grateful for everything Bill contributed to building our firm and delivering value to Pimco's clients, over the course of this year it became increasingly clear that the firm's leadership and Bill have fundamental differences about how to take Pimco forward," Hodge said.

DJ Investors Pull $41.1 Billion From Pimco Total Return Fund in 2013 By Min Zeng

Jan 03, 2014 | WSJ

Last year left a black-and-blue mark on the world's biggest bond fund, run by Bill Gross: a cash redemption from clients greater than any other U.S. stock or bond funds on record.

Clients yanked $41.1 billion from the $237 billion Total Return Fund at Pacific Investment Management Co. during the course of 2013, according to fund-data provider Morningstar.

The redemption broke the previous record outflow of $33 billion that stock fund American Funds Growth Fund of America suffered in 2011, according to Morningstar, which began to track mutual-fund flows in 1993.

The bruising record underscores the challenge Mr. Gross has been confronting over the past year as worries about rising bond yields drove investors out of traditional bond funds. When bond yields rise, their prices fall.

Mr. Gross's fund is particularly vulnerable because of its focus on buying high-quality bonds such as U.S. Treasurys. The benchmark 10-year Treasury yield soared by more than a percentage point in 2013. The U.S. government debt market handed investors a loss of 2.75% in total return, the biggest annual loss since 1999, according to Barclays.

Margaret McDowell, a financial adviser at Arbor Wealth Management in Miramar Beach, Fla., said she pulled out completely from Mr. Gross's fund in 2013. The company has $76 million in assets under management.

"You don't want to be the last one without a chair when the music stops, " Ms. McDowell said. "My advice is getting out of traditional bond funds and preparing for rising yields."

Mr. Gross's fund drew $85.8 billion new cash between 2009 and 2012 as investors sought safety that sent Treasury bond prices to historic highs following the 2008 financial crisis.

But the tide turned against Treasury bonds last year as bond prices sold off. Clients started pulling out of Mr. Gross's fund in May when the benchmark 10-year Treasury note's yield climbed from a near-record low. Since then, the fund has suffered redemption in each month through December 2013.

Last year's outflow was the second time in the fund's history that it posted an annual redemption. Clients pulled out $4.97 billion in 2011 as Mr. Gross's ill-timed negative bets on Treasury bonds turned the fund into one of the worst performers among its peers that year.

Mr. Gross, founder and co-chief investment officer at Pimco, has urged investors in recent months to stay on board.

"Flexible bond managers can adapt as well," Mr. Gross said in his August investment outlook. "PIMCO will not go down at the Somme."

Clients of the fund suffered a loss in 2013 amid rising bond yields, a factor that also may dim the fund's luster for some investors.

Mr. Gross's fund handed investors a loss of 1.92% in total return in 2013, the second-biggest calendar-year loss since the fund's debut in 1987, according to Morningstar.

The fund's loss, however, was smaller than the 2.02% decline on the Barclays U.S. Aggregate Bond Index, a reason some investors rallied behind Mr. Gross.

Mr. Gross's fund is like "a good building in a bad neighborhood," said Keith Amburgey, chief investment officer at Rutherford Asset Planning in Tampa, Fla., which has $130 million in assets under management.

Mr. Amburgey said he didn't pull money from Mr. Gross's fund during 2013.

[Nov 26, 2013] Markets will come 'unhinged' if this happens BofA

The 10-year Treasury yield hit 2.84 percent on Thursday, the highest level in two months. And MacNeil Curry, the head of global technical analysis at Bank of America Merrill Lynch, warns that if yields continue to rise, it will be a very rocky ride for markets.

"If we take out 3 percent, we'll probably get a move up to about the 3.17, 3.30 area," Curry said. "And if we do it with some momentum, then it's going to cause quite a bit of panic."

If yields rise even higher, then more than panic will result.

"Where things would be truly unhinged, you'd need to see a break of, say, 3.6, 4 percent," Curry said on Thursday's "Futures Now." "If that were to transpire, you want to talk about volatility? It's going to be a different ballgame."

Without predicting that sharp of a move, the technician does see yields going higher as bonds drop.

"We've been in long-term, and we are in a long-term bear trend in Treasurys," Curry said. "All we've done in the past couple months is correct that trend. We've done no damage to that long-term bear trend."

(Read more: 3 technical reasons to be nervous about stocks)

But he stops short of predicting the sort of jump in yields that would wreak havoc.

"We're not there yet," Curry said. "From a technical perspective, we don't quite see that in the cards."

[Aug 23, 2013] The Taper Risk Is In Stocks Not Bonds

Zero Hedge

According to the Fed, QE's aim was to drive down interest rates to unattractive levels by purchasing bonds in the market, thus encouraging participants to purchase riskier (and higher-yielding) securities. As Cornerstone's Ronnie Spence notes, this risk-seeking behavior in theory boosts asset prices (and increases the 'wealth effect'). However, when one examines what has actually happened under QE, only stock prices have followed the QE theory.

In fact interest rates have only declined in periods when the Fed stopped QE.

Spence points out, that the drop in rates in response to QE likely results from the plunge in equity prices that has resulted when the Fed has looked to end their QE programs. Put another way, "Taper" is a false narrative for higher rates when in fact all the 'taper' risk is in stocks (and historically traders haven't priced it in until the money actually stops flowing).

[Aug 23, 2013] Seeking Alpha - Fed Targeting 4% To 5% Nominal 10-Year Treasury Yield And Baa Corporates Approaching 7%

The Fed is targeting 2% inflation. The long-term spread between 10-year Treasuries and CPI is about 2.5% (the "real rate"). That gives 4.5% as a probable target for the 10-year bond.
Jun 21 2013 | Seeking Alpha

It is easier to predict WHERE they will go than WHEN they will go, and near impossible to predict both. We'll stick with WHERE in this letter, except to say we doubt rates will rise to "normal" levels very rapidly because central banks will probably take measures to moderate the rate of change.

It seems to me that the Fed in the back of its mind is expecting 10-year Treasury rates to go to the 4.0% to 5.0% range over the next year or two or maybe three. That would correspond to 30-year mortgages in the range of 5.75% to 6.75% compared to nearly 4% today. The estimated Treasury rate would also correspond to Baa corporate bonds at about 8%.

How do we estimate those rates? … just using long-term averages.

The Fed is targeting 2% inflation. The long-term spread between 10-year Treasuries and CPI is about 2.5% (the "real rate"). That gives 4.5% as a probable target for the 10-year bond.

10-Year Treasury rate (blue), CPI (red) from 1963

[Aug 21, 2013] Bond investing in a rising interest rate environment

August 14, 2013 | Vanguard
In this interview, Brian Scott, a senior investment analyst in Vanguard's Investment Strategy Group, discusses concerns about the bond market and explains why Vanguard believes bonds can play a crucial diversification role in your portfolio, even in the event of a significant downturn.

We're getting a lot of questions about whether bonds are headed for a bear market. What is a bond bear market, and how is it different from a stock bear market?

Listen to an audio recording of this interview "

It's an interesting question, because there is not a commonly accepted definition for a bear market in bonds. The answer for stocks is a rather simple one. There is a widely accepted, broadly used definition for a bear market in stocks, and that's a decline of at least 20% from peak to trough in stocks.

Now, if you tried to use that definition and apply it to bonds, we've never had a bear market in bonds. In fact, the worst 12-month return we've ever realized in the bond market was back in September of 1974, when bonds declined 13.9%. So we've never had a decline of the same magnitude as we've had in stocks, and I think that's one of the key differences between stocks and bonds.

Back to your original question then: What is a bear market in bonds? And, judging by investor behavior and reaction to losses in bonds, I think the answer is simply any period of time wherein you realize a negative return in bonds.

Is a bond bear market something we should be concerned about? If so, is there anything investors can do to prepare?

We've a great deal of sympathy for the anxiety that investors feel about the bond market right now. Typically, an investor that has an allocation to bonds-particularly those that have a large allocation to bonds-tend to be more risk-averse and become more unsettled when they see negative returns in any piece of their portfolio, let alone their total portfolio.

So we understand how unsettling this environment can be-and, in fact, we have actually realized a negative return in bonds. If you're looking at the 12-month return through the end of June 2013, bonds are now down about 0.7%-and when I say bonds, I'm referring to the Barclays U.S. Aggregate [Bond] Index. So, by that definition, and if you use the definition of a bear market I applied earlier, you could say-and some people have argued-that we are actually in a bear market in bonds.

And so it's unsettling; but, in times like these, what we encourage investors and their advisors to do is to look at the total return of their portfolio. And I think they'll feel much more comfortable when you take that perspective. As an example, an investor in Vanguard's Balanced Index Fund that has a mix of 60% U.S. stocks and 40% U.S. bonds realized a rate of return of 12% through June 30, 2013. So a total return perspective is especially valuable in times like this.

You recently co-wrote a research paper in which you note that in 2010, like today, investors also believed rising interest rates would cause bond losses, but that didn't happen. Does the experience of the last three years suggest anything about what investors should do now?

I think the last three years are very instructive and really impart a lot of lessons that investors can find very valuable in times like this. So for a little bit of historical perspective, back in about April/May of 2010, the yield on a 10-year Treasury note was about 3.3%. That was a level that was probably lower than almost all investors have ever seen in their investment lifetime. And you have to go back to August of 1957 to see yields as low as they were back in May of 2010.

And I think that perspective alone caused many people to assume that interest rates had to rise. And I think an important lesson from that environment and how the market actually reacted is that the current level of interest rates tells us absolutely nothing about their future direction. Just because yields are low doesn't mean that they can't go lower or that they must go higher. But at any point, in May of 2010, if you looked at what the market was pricing in and looking at forward yield curves, the market's expectation were that yields were going to rise, and the 10-year Treasury yield was going to rise to a level slightly over 4%.

In fact, what actually happened is that yields fell to just over 1.4%-again, I'm referring to the 10-year Treasury note. And if you had shortened the duration of your portfolio or moved your bond portfolio entirely into cash, you lost a tremendous amount of income.

I think another important lesson is that making knee-jerk reactions in your portfolio can be damaging over time and potentially even incur tax losses as well as higher transaction costs.

Do you have any thoughts about how to make the case that the smartest course of action is probably no action, assuming a portfolio is already well constructed?

That's a hard thing to do, because in the face of what you think is an impending loss in your portfolio, it's a very natural and even human reaction to feel like you have to do something. But we would argue, very strongly, that investors are best served by not changing their asset allocation unless some strategic element of their asset allocation has changed.

And, by that, I mean if your investment time horizon has changed, your investment objective has changed, if you really have an enduring change in your risk tolerance, then perhaps it's worth altering your strategic asset allocation. However, if those circumstances have not changed, you're probably best served by maintaining the strategic asset allocation that you set.

What are some indicators that your risk tolerance may be changing?

If you have extreme anxiety-let's face it, if you can't sleep at night, perhaps it's worth asking yourself whether your risk tolerance has changed. What we found-and we're not unique in this-is that investors tend to have a high level of risk tolerance when times are good and then when capital markets are delivering strong, positive returns. That changes sometimes over time. Now, we're not suggesting that you should frequently change your portfolio, but if you're really having a high level of anxiety over losses, perhaps it's worth becoming more conservative.

I think another way to react to the current environment is just to recognize the role that each asset class has in your portfolio. Stocks are designed to deliver strong capital gains-ideally, over the long term, above the rate of inflation so that you can grow your spending power over time. The role of bonds-at least the primary role of bonds, in our minds-is to act as a cushion or balance to stocks. Stocks tend to be much more volatile, much more prone to significant losses in bear markets in excess of 20%, and, when that happens, bonds tend to be an ideal cushion against equity market volatility.

It's very paradoxical. But perhaps, if you are feeling a higher level of anxiety because of the volatility in the fixed income markets in particular, the right answer for you might actually be a higher allocation to bonds. Because we actually think that because bonds are a good cushion to equity market volatility, over the long term, a higher allocation to bonds will reduce the total downside risk in your portfolio.

Investing can provoke strong emotions. In the face of market turmoil, some investors find themselves making impulsive decisions or, conversely, becoming paralyzed, unable to implement an investment strategy or to rebalance a portfolio as needed.

Discipline and perspective are qualities that can help you remain committed to your long-term investment programs through periods of market uncertainty.

Learn more "

Well, that's certainly counterintuitive. Despite what you just said, your paper does ask the question of whether investors should consider moving away from bonds.

Yeah, that's the most common question we're getting right now. There's a lot of interest in other instruments that we're calling bond substitutes. Now, there's not necessarily anything wrong with them. So I think the term might impose kind of a negative connotation on some of these bond substitutes, but people are viewing other higher-yielding investments as a potential substitute for the high-quality bonds in your portfolio.

Some of those substitutes that I'm referring to are things like dividend-paying stocks, some high-yield bonds, floating-rate bonds, etc. And one of the things that we're really encouraging investors to recognize is that, while these instruments have higher yields than high-quality bonds like you get with the Barclays U.S. Aggregate [Bond] Index or certainly with Treasury bonds, they do have a very different risk profile, particularly when equities are declining. When equities are doing very poorly, many of these bond substitutes actually act a lot more like equities than bonds.

So it sounds like attempts to reach for income could end up depressing your overall returns. Is that right?

Over the long term, we think the answer is absolutely yes, and we've done some work around this, and we've modeled what we think will be forward-looking returns of portfolios over the long term for balanced investors. And what we found is the higher your allocation is to equities, the larger the downside risk in your portfolio is over time. And that's also true if you move away from high-quality bonds and Treasury bonds, in particular, and invest your bond allocation in some of these bond substitutes we've been talking about.

Older investors may be worried about generating income in a low interest rate environment. Do you have any advice?

This may be the hardest question you've asked of all, because we have a tremendous amount of sympathy for investors in this situation, those who are older-or, really, frankly, anyone who's really dependent on their portfolio to produce income for them, to meet their current spending needs, because you're absolutely right. The traditional answers to providing income-high-quality bonds-are not providing the level of income that investors have grown accustomed to. We've actually referred to these investors-and, really, maybe more appropriately call them savers-as a sacrificial lamb of current monetary policy. The very low interest rate environment we're faced with has really imposed a severe penalty on these savers.

And our answer is that if you choose to move away from the high-quality bonds into instruments that will generate more income in your portfolio, you'll likely get more income over time, but you'll also very likely experience a much higher level of volatility in that income stream. Of course, the only other alternative is to reduce your spending, which perhaps is even harder to do than to stomach lower levels of income for your portfolio. So there really is no easy answer.

Vanguard really emphasizes the idea of total return. Could you talk a little bit more about that and what that means in light of what's happening in the bond market?

I think it goes back to not looking at each piece of your portfolio and the returns that they're currently generating, but the return of your total portfolio overall. It's very rare that all assets in your portfolio are delivering very strong returns at any point in time. In fact, you don't want that if you're a balanced investor, because if you do have assets that are that highly correlated in good times, chances are they'll be very highly correlated in bad times as well, and you'll realize very sharp losses in declining equity markets. But ideally, if you have a balanced, diversified approach to investing, you'll realize healthy rates of total return over time.

Vanguard research

Risk of loss: Should the prospect of rising rates push investors from high-quality bonds? PDF

[Aug 16, 2013] The Fed's 2016 Problem, Or Why The Taper (Non) Announcement May Just Be A Sideshow

Zero Hedge

From JPM:

The 2016 Problem

The Fed faces an interesting situation at the September FOMC meeting. At that meeting they will introduce their 2016 interest rate forecasts for the first time. The problem is that at the end of 2016 their economic forecasts may well show an economy that is close to full employment and price stability. Normally in that situation one would expect the fed funds rate to be close to neutral-which is somewhere close to 4%. However, their end-of-2015 forecasts have a funds rate forecast centered around 1%.

An end-of-2016 funds rate of 4%, which implies 300bp of tightening over the course of 2016, is well in excess of what the market is pricing in. If the FOMC were to produce such a forecast, and if the market were to take its cue from that forecast, then the ensuing tightening in financial conditions would undo much of the hard work the Fed has done in getting rates low enough to support the recovery.

... ... ...

So far, the Fed's embrace of transparency hasn't conflicted with its desire to provide extraordinary monetary stimulus. September will provide an interesting test. If the Fed presents a 2016 interest rate forecast that is well above the market's expectations-and if the market takes any cue from the Fed-this could tighten financial conditions such that the forecasted acceleration in growth fails to materialize. Instead, we think the interest rate forecast will be somewhat above where the market is, but not radically so. Such a forecast may appear at odds with the Fed's economic forecast, but we believe there are good reasons for that gap to exist. So far the market seems to agree.

Twitter - PIMCO Gross Soros comes to bond mkt! ...

Gross: Soros comes to bond mkt! #QE3 creates mini asset bubbles but little growth.

#Tapering & fwd guidance hope 2 reverse that.


[Aug 10, 2013] Why Bill Gross will lose the bond war

[Aug 06, 2013] UPDATE 1-Pimco suffers $7.4 bln outflows from U.S. mutual funds in July by Sam Forgione

Aug 06, 2013 | Reuters

... ... ...

Fears of rising interest rates on expectations that the Federal Reserve will begin to reduce its bond-purchase program in coming months drove investors to pull cash out of bond funds in June and July. U.S. bond funds had outflows of $21.1 billion in July after record outflows of $69.1 billion in June, according to TrimTabs data.

For Pimco, outflows of $7.5 billion from its flagship bond fund, the Pimco Total Return Fund, drove overall outflows across its U.S. mutual funds in July. Pimco Total Return, which is run by Pimco founder and co-chief investment officer Bill Gross and ranks as the world's largest mutual fund, had record withdrawals of $9.6 billion in June.

Pimco Total Return fund has roughly $262 billion in assets, according to Chicago-based Morningstar.

The overall outflows from Pimco includes all of the firm's open-end mutual funds based in the United States, Morningstar said. While Pimco's bond funds suffered total outflows of $7.3 billion, its stock funds had inflows of $138 million.

[Jul 15, 2013] Gross Adds to Holdings of Treasuries After TIPS Losing Bet By Susanne Walker

Jul 15, 2013 | Bloomberg

Pacific Investment Management Co.'s Bill Gross added to holdings of Treasuries in his flagship fund in June while betting incorrectly on gains in U.S. inflation-indexed securities during the first half of the year.

The proportion of U.S. government debt in the $268 billion Total Return Fund rose to 38 percent, from 37 percent in May, according to data on Pimco's website. The Newport Beach, California-based company doesn't comment directly on monthly changes in holdings or specific types of securities within an market sector such as the percentage of Treasury Inflation Protected Securities in the U.S. grouping.

Gross had been buying TIPS on a bet that money printing by the world's central banks would push up consumer prices, making Treasuries the largest portion of the fund. When yields began to rise in May on expectations the Federal Reserve would slow its bond-buying program, inflation expectations didn't, amplifying the losses on inflation-hedged U.S. debt. The world's largest mutual fund fell 4.7 percent in May and June, prompting $9.9 billion in withdrawals last month, the most on record.

While the yield on 10-year Treasuries soared as high as 2.75 percent on July 8, from a low of 1.61 percent on May 1, yields on inflation-indexed debt climbed even faster and further. As a result, the narrowing in the difference between yields of Treasuries and TIPS, known as the break-even rate, showed that investors viewed inflation as less of a threat in the short term and thus were cutting the price they would pay for insurance against it.

The break-even rate on the 10-year bonds dropped to 1.81 percent on June 24, the lowest since October 2011. The rate was 2.08 percent yesterday.

Gross, co-founder and co-chief investment officer at Pimco, also added to his holdings of mortgage securities, the fund's second largest holdings. The proportion rose to 36 percent last month, from 34 percent in May.

He cut non-U.S. developed nations' debt to 5 percent, from 7 percent in May. Investment-grade credit holdings were unchanged at 6 percent in June.

The Total Return Fund (PTTRX)'s emerging-market debt holdings were also steady at 7 percent from the previous month.

Over the past five years, the Total Return Fund has returned 7.2 percent, outperforming about 91 percent of competitors. It gained 0.15 percent over the past year, placing it in the 66 percentile of its category, according to data compiled by Bloomberg.

The Total Return Fund's government and Treasury debt category includes fund holdings of U.S. Treasury notes, bonds, futures and inflation-protected securities.

Pimco, a unit of the Munich-based insurer Allianz SE (ALV), managed $2.04 trillion in assets as of March 31.

[Jul 08, 2013] Pimco U.S. Funds Had $14.5 Billion of Withdrawals in June


Withdrawals at Pimco were driven by a record $9.9 billion pulled last month from Bill Gross's Pimco Total Return Fund (PTTRX), the world's largest mutual fund, which left it with $268 billion in assets at the end of June. Pimco Total Return lost 4.2 percent this year through July 5, trailing 86 percent of peers, according to data compiled by Bloomberg.

It fell 3.7 percent over the past month, worse than 95 percent of comparable funds.

[Jun 26, 2013] Pimco Flagship Fund Loses Big on Bond Shock By Matt Clinch

Hit is a hit but with stagnation of the economy, bonds still represent some value...
Yahoo! Finance

Pimco's flagship Total Return Bond Fund took a hefty hit in June, due to the sharp rise in bond yields that was sparked by fears the U.S. Federal Reserve will scale back its asset-purchasing program.

The Pimco fund, which is the world's largest bond fund, with over $285 billion asset under management, has shed 3.79 percent from its net asset value since the start of June. This makes it the 12th-worst performer out of 177 similar funds tracked by data firm Lipper, according to the Wall Street Journal.

Established in 1997, and led by Pimco co-founder Bill Gross, the fund boasts the highest performance rating from research firm Morningstar. However, the net asset value of the fund is down 4.57 percent year-to-date at $10.65, a low not seen since August 2008.

This come as data from TrimTabs Investment Research showed that mutual and exchange-traded funds hemorrhaged a record $47.2 billion of bonds in June, the highest outflow of any month on record.

The global sell-off in bonds began on May 22, after minutes from a Fed policy meeting signaled that its bond-buying program-which has suppressed bond yields and boosted stocks-could soon be pared back.

The sell-off accelerated when Fed Chairman Ben Bernanke echoed these sentiments at a press meeting last Wednesday, suggesting that purchases could be scaled back this year, if the U.S. economic outlook continues to improve.

Bond market outflows stabilized somewhat this week, but the yield on 10-year U.S. Treasury note remains at 2.56 percent, close to a 2-year high.

[Jun 24, 2013] The Danger Lurking in Your Next Brokerage Statement (MUB, NLY, PCY, PTTRX, VBTLX)

Bond prices move in the opposite direction as yields. As a result, as you're opening your brokerage statements in early July, you can expect to see troubling results like these:

In addition, even stocks geared at generating income haven't been immune. Mortgage-REIT Annaly Capital (NYSE: NLY ) , once the go-to place for high-dividend yields and strong total returns, has plunged 20% since the beginning of April. A steepening yield curve might help mortgage REITs in the long run, but for now, the Fed's continuing purchases of mortgage-backed bonds hamper Annaly's ability to maximize its profits. More broadly, rising interest rates hurt a wide range of rate-sensitive stocks, and so you'll see many dividend-paying stocks having suffered somewhat deeper declines than the broader market.

[Jun 22, 2013] Bullard Says Fed May Boost QE If Inflation Slows Further By Steve Matthews

Jun 21, 2013 | Bloomberg

Federal Reserve Bank of St. Louis President James Bullard said the central bank may need to increase monthly asset purchases above the current $85 billion pace if inflation slows further below its 2 percent goal.

[Jun 22, 2013] Gross's Total Return Among Worst Performing Amid Selloff -

Gross was caught holding 30 years bond, which was very risky move to buy in the first place.

Gross's flagship, the world's largest mutual fund, lost 1.6 percent from June 18 through June 20, the day after the Fed outlined its exit scenario, and was down 2.8 percent for the year, the worst of 19 U.S. total return funds with at least $2 billion in assets, according to data compiled by Bloomberg. The $4.2 billion Bernstein Intermediate Duration Portfolio was the third-worst performer this year, after Pimco Total Return and a related fund, falling 2.7 percent.

Gross...said now is a bad time to sell bonds because the economy isn't strong enough to sustain higher borrowing costs. Gross, who trailed peers in 2011 after dumping Treasuries before they rallied, said this week that investors who are selling U.S. government debt now are missing the influence of inflation on the central bank's decisions.

"The market basically has misinterpreted the growth and unemployment targets while leaving out inflation targets going forward," Gross said in an interview with Trish Regan and Adam Johnson following Bernanke's comments.

Investors pulled the most ever from bond funds in the week ended June 12, according to EPFR Global, a Cambridge, Massachusetts-based firm. The funds lost $14.5 billion to redemptions last week and $12.5 billion the week before, EPFR reported.

Investors pulled an estimated $1.32 billion from Gross's fund in May, according to Chicago-based Morningstar Inc. (MORN), its first withdrawals since 2011. The $4.7 billion Pimco Total Return Exchange-Traded Fund (BOND) has seen redemptions of $487 million since May 15, according to data from San Francisco-based IndexUniverse.

Gundlach said Treasuries will outperform stocks and commodities over the coming months because the latter two will slump more if yields continue to rise. The reason DoubleLine Total Return is outperforming Pimco Total Return Fund despite their managers' similar outlooks on Treasuries is that the DoubleLine fund has a shorter duration and less interest rate risk, Gundlach said.

"I think Treasuries will be the best-performing asset class for the next few months," Gundlach said in a telephone interview yesterday. "The place that's the best is the place everybody hated."

Gross and his colleagues have been skeptical about the U.S. economy's potential for growth since the financial crisis. Gross said last week the Fed won't raise rates in a "meaningful way" for at least the next two years and investors should be cautious when it comes to all risk assets.

Gross and his colleagues have been skeptical about the U.S. economy's potential for growth since the financial crisis. Gross said last week the Fed won't raise rates in a "meaningful way" for at least the next two years and investors should be cautious when it comes to all risk assets.

Gross cut the holdings of Treasuries in Pimco Total Return Fund to 37 percent in May from 39 percent in April, a level that was the highest since July 2010, according to data on Pimco's website. U.S. Treasuries have lost 2.3 percent this year through yesterday, according to Bank of America Merrill Lynch indexes. The Barclays U.S. Aggregate Index, among the most widely used fixed-income benchmarks, has declined 2.3 percent this year and has fallen 1.2 percent since June 18.

Pimco Total Return also has a longer duration than rival funds. Duration is a measure of sensitivity to changes in interest rates. Gross's fund had a duration of 5.2 years as of May 31, compared with 3.2 years for DoubleLine Total Return. TCW Total Return Bond Fund's duration was 3.3 years as of March 31.

"We simply think the real economy won't follow the path that the Fed thinks it will because the Fed is based on a cyclical model that's inappropriate," Gross said in a Bloomberg radio interview yesterday with Tom Keene.


Gross has been off for three to four years. he has admitted his mistakes, and still has had the generoisty to give away stamps/ But he should hire additional fixed inocme traders to help manage the changes that are coming in next 18 months.

My feeling is that 2.5 will hold. Then geo political even will push it back to 2.

[Jun 21, 2013] Gross Bernanke's Message Was Pro-Growth Video

An interesting interview, where Gross defended his buying of long term Treasures... He also sharply criticized Bernanke suggesting that his is driving in the fog. To a curtain extent Bernanke is driving in a fog, taking structuring issues of high unemployment and inflation for cyclical issue. Job growth is a very difficult target in a current environment for the next 12-16 months.
Jun 19, 2013 | Bloomberg

June 19 (Bloomberg) -- Pimco Co-Chief Investment Officer Bill Gross reacts to Ben Bernanke's news conference and Fed statement on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Gross thing the market missing influence on inflation. Inflection has to go up to 2% target. Those who sell treasures in anticipation of FED tapering might be disappointed if inflation remains low.

Higher inflation target 2% was specifically delineated. So the main fear is deflation and this what Chairman is afraid of.

So tapering start is conditioned by two events: unemployment lowing to 7% and inflation rising to 2% (which is a target).

Chairmen is afraid of deflation. Now inflation is around 1% and I doubtful that during Bernanke time left, higher inflation target of 2% can be achieved. And it is a target.

To a curtain extent Bernanke is driving in a fog, taking structuring issues of high unemployment and inflation for cyclical issue. Job growth is a very difficult target in a current environment for the next 12-16 months. Globalization in a sense of dampening wages, with lowest due to third world competition, demographic (aging of society, lower birth rate), that put cap on consumption, race against machine when technology is eliminating jobs instead of providing them.

All of those are structural issue that will keep unemployment high and lowing it to 7% is tall order.

[Jun 21, 2013] Are Bond-Market Fears Greatly Exaggerated?

Bonds definitely were in a bubble territory... This relatively small correction just restored sanity, but it does not change the fact that growth in minimal or absent, unemployment is high, large enterprise profits are due to cost-cutting and situation is not improving
Jun 20, 2013 | Barron's

John Fallavollita wrote:

I tend to agree with Schilling on this one. With inflation dead in the water, there is no need to panic about the Fed's move on interest rates for at least a year. This past month may turn out to be a head-fake on bonds.

But, and here's where I start to sweat, if we are heading for the same fate as Japan - deflation - then we will be playing this story over and over like in Groundhog Day. One day we hit 2.5% then the next month we are back down to 1.6%, and the cycle repeats until we drop. There is nothing in the good book of economics that says we get out of this mess with inflation.

Kenneth Cusick wrote:

The bottom line here is that no one knows what the market value of bonds would be without the Fed's QE program. It seems very unlikely it will be lower but given economic reality of low growth it seems unlikely interest rates should be double or even 50% higher then they are currently. The only economic force that could do that is inflation. A lot of people have been running scared of hyperinflation in the last few years (see price of gold last year) but the gold market is saying that fear is dead. And no one has seen even a wisp of inflation anywhere.

[Jun 14, 2013] Pimco Sees 60% Chance of Global Recession in Five Years -

The key message here is that right now bond investors probably shouldn't avoid adding risk (duration or quality risks) in the search for yield. The situation is no longer stable. And 5% win is not worth of possibility of 10-20% loss.

Global growth will slow, keeping inflation in check, and "economic volatility" will increase, Saumil Parikh, a portfolio manager at Newport Beach, California-based Pimco, said in a report being posted on the firm's website today. Investors shouldn't add risk in the search for yield, he said.

"The global economy experiences a recession every six years or so, and the frequency of global recessions tends to increase when global indebtedness is high and falling as opposed to when indebtedness is low and rising," Parikh, who focuses on asset allocation, multisector fixed income and absolute-return portfolios, said in the report. The last global recession was four years ago, he said.

Bill Gross, Pimco's co-founder and co-chief investment officer, said in a Bloomberg Television interview last week he's sticking with high-quality bonds as market risks are rising and stocks, high-yield debt, currency and emerging-market bonds are all in "disarray."

Global bonds had their worst month in nine years in May, led by Treasuries, as investors sold debt in anticipation central banks will eventually scale back their unprecedented asset purchases.

Bonds will deliver nominal returns from 1 percent to 2 percent and stocks will return about 5 percent, Parikh said. Those return estimates are 2 percent to 3 percent below their historical averages over the past 100 years relative to inflation, Parikh said.

Australia, Sweden The most attractive nominal government bonds include those issued by Australia, New Zealand, Sweden, Mexico and Brazil, while for inflation-linked bonds, long maturity exposures in the U.S., Brazil, Italy and Chile are opportunities, he said. Pimco likes emerging-market equities such as Chinese non-financial stocks and Spanish and Irish companies. Stocks in Japan, the U.S., Germany, Australia and Mexico should be reduced because they're too expensive and have muted growth prospects, Parikh said.

[Jun 1, 2013] Gross's Pimco Total Return Fund Falls 1.9% in May

Bill Gross bought treasures way too early. At the same time the DC crowd is deeply invested in protecting banks, no matter how terrible their conduct. And that means no rising rates so losses of Pimco Total Return might be temporary.
May 31, 2013 | Bloomberg

Bill Gross's Pimco Total Return Fund (PTTRX), the world's largest mutual fund, declined 1.9% this month, the biggest monthly loss since September 2008.

The performance of the $293 billion Total Return Fund puts it behind 94 percent of similarly managed funds through May 30, according to data compiled by Bloomberg. The fund's allocation to Treasuries has hindered performance as government-debt securities fell 1.8 percent in May as of yesterday, headed for the steepest monthly loss in three years, according to Bank of America Merrill Lynch indexes.

Gross raised the holdings of Treasuries in his flagship fund to 39 percent as of April 30, the highest level since July 2010, from 33 percent as of March 31. He's increased the proportion of U.S. government securities every month this year since February.

In 2011, Gross's fund lost an estimated $5 billion to withdrawals, according to Morningstar Inc. (MORN), after he eliminated U.S. Treasuries early in the year and missed a rally.

[May 19, 2013] Jeff Gundlach We Are Drowning In Central Banking

Bill Gross did not mince his words when he said that he now "sees bubbles everywhere"
Zero Hedge

Last week, Bill Gross did not mince his words when he said that he now "sees bubbles everywhere" and that "when that stops there will be repercussions" but for now Benny and the Inkjets, not to mention his band of merry statist men, who take from the poor and give to the wealthy, are playing the music on Max, and so one must dance and dance and dance. And after one legacy bond king, it was the turn of that other, ascendant one - Jeff Gundlach - to share his perspectives Bernanke's amazing bubble machine. His response, to nobody's surprise: "there is a bubble in central banking. We are drowning in central banking and quantitative easing.... And it's not ending until there are some negative consequences."

What are those negative consequences? This too should be perfectly expected for regular readers: currency devaluation leads to trade wars (as either is a zero sum game, and in a zero sum game it is very easy to blame someone else for one nation's suffering and economic malaise), trade wars lead to real wars (see the 1930s), and so on.

We are not there just yet: quote Gundlach

"With global growth slowing not everyone can increase their imports [indeed: observe just how it was that Spain managed to post its first "trade surplus" since 1971 - hint: not by boosting exports] you're playing a market share game."

But it is rapidly approaching:

"We are looking at competitive currency devaluations, which causes rancor, causes unhappiness, and fingerpointing and god-forbid tariffs and things that cause even slower economic growth a la the 1930s."

Good choice of words, considering it was just a week ago that none other than stagnating metals magnate Lakshmi Mittal, head of ArcelorMittal, who was urging Europe to just go ahead already and declare trade on China asap. For his own selfish reasons of course.

Reducing your bond allocation Proceed with caution

The key problem here is the possibility of Japanese scenario. Now it is clear that in May we were in a bond bubble. But what what if correction is only temporary? What if the USA is a new Japan?
May 07, 2013
Investment-grade bonds have had an extraordinary run over the last 30-odd years. Low interest rates, tame inflation, and-especially in the last decade-demand for a "safe haven" from volatile equity markets aligned in bonds' favor, producing a return of 8.2% on average per year from 1976 through 2012.*

But Vanguard believes future bond returns are unlikely to be as generous. After all, yields are now near historical lows, leaving little room for prices to rise (yields and prices move in opposite directions). And of course, low yields mean the income earned from these bonds is going to be low as well.

Bonds can play a useful role in almost any portfolio, but many people find them confusing.

We've created interactive illustrations to take away some of the mystery:

Overview: How do bonds work? "
Duration "
Maturity and stability "
The yield curve "

Note: These illustrations require Macromedia Flash software and may not be viewable on all devices.

Looming on the horizon is the possibility-likelihood is perhaps a better word-that as the U.S. economy strengthens, the Federal Reserve will return its interest rate targets to historically normal levels, with negative implications for bond prices.

Are investment-grade bonds still a keeper?

Given the low expected returns for investment-grade bonds, it's not surprising that some investors see greener pastures in alternatives such as high-yield bonds, high-dividend-paying stocks, or emerging market bonds.

A smart switch? Not necessarily.

Regardless of yield levels, we expect investment-grade bonds to continue to show a low performance correlation to stocks-a diversification benefit, especially during periods of sharp drops in the equity market, when investors value a cushion the most.

A recent Vanguard study looked at the implications of lower expected returns from investment-grade bonds. Our analysts conducted performance simulations that illustrated how lower returns from bonds would likely lead to lower overall returns for a balanced portfolio, while still offering a significant level of protection from downturns in the stock market.

Crunching the numbers

The two hypothetical scenarios below show how an allocation to investment-grade bonds could offset steep declines in the stock market.

In Scenario 1, if the stock market were to drop 20% over a 12-month period and investment-grade bonds were to return 7.3% (their historical average yield between 1976 and early 2013 --[ I wonder where Vanduard visard see such returns in 2013 - NNB] ), a balanced portfolio with 60% stocks and 40% bonds would return –9.1%. The hypothetical investor's bond allocation would, in effect, offset 10.9% of the loss that his or her account would have experienced in an all-stock portfolio.

Scenario 2 also assumes a 20% decline in the stock market, along with much lower bond returns: 1.9%, which is today's current investment-grade bond yield. This would result in a lower return but still cushion the portfolio's fall by 8.8%.

Scenario 1 Scenario 2
Stock returns: –20.0% –20.0%
Bond returns: 7.3% 1.9%
Total portfolio return: –9.1% –11.2%
"Cushion" from bond holdings: 10.9% 8.8%

Assumptions: 12-month total return for a broadly diversified portfolio with 60% stocks and 40% bonds. No change in interest rates.

Notes: These hypothetical scenarios do not represent the results from any particular investment. Scenario 1 assumes a forward-looking bond return of 7.3%, equal to the average historical yield to maturity of the Barclays U.S. Aggregate Bond Index from January 1, 1976, through January 31, 2013. Scenario 2 assumes a more conservative, forward-looking estimated bond return of 1.9%-the Barclays U.S. Aggregate Bond Index current yield to maturity as of January 31, 2013.

Consider changing your expectations, not your asset allocation

Investment-grade bond returns of 1.9% per year are far from what bond investors have become accustomed to. But unlike riskier investments (such as high-yield bonds, high-dividend-paying stocks, and emerging market bonds), investment-grade bonds are expected to continue to act as a counter to stock market volatility and provide downside protection in steep stock market sell-offs.

The bottom line: If you want more return than investment-grade bonds offer, you have to be willing to take on more risk. Low returns don't make the decision any easier-the trade-off is the same.

For a detailed look at the downside protection provided by investment-grade bonds under various return scenarios, view the Vanguard research paper Reducing bonds? Proceed with caution.

* Source: Vanguard, using the Barclays U.S. Aggregate Bond Index as a benchmark.

How Much Should Retirees Stake in TIPS

Retirees and pre-retirees have been challenged by the investing environment during the past several years, to put it mildly. In addition to contending with the epic bear market from 2007 through early 2009, many retirees are complaining that it's next to impossible to generate a livable income stream from their portfolios given ultralow bond yields. To cover their day-to-day expenses, retirees are having to choose between tapping their principal or venturing into higher-yielding, but also riskier, securities such as high-yield and emerging-markets bonds. Neither is an especially appealing prospect. Others, meanwhile, are concerned about what could happen to their bond portfolios if interest rates were to jump up, which has been happening recently.

And while inflation currently appears to be in line with historical norms, retirees are also rightfully worried about the potential for rising inflation to gobble up their portfolios' future purchasing power. I usually recommend inflation-linked securities like Treasury Inflation-Protected Securities as the most direct way to hedge against inflation. But even investors who are convinced that TIPS are a good place to be long term still have questions about implementation. How much of a retiree's fixed-income portfolio should go toward TIPS or other inflation-linked bonds? And what about timing? If you buy TIPS at an inflated level (pardon the pun) and the bonds' prices sink shortly thereafter, do you erode any long-term benefit you hoped to gain from them?

The Importance of Being Inflation-Protected I'll discuss these questions in a minute, but first it's worth fleshing out why a dose of inflation protection is so important for retiree portfolios. In large part, it's because retired folks miss out on some of the inflation protection that working people normally enjoy.

Paychecks will generally trend upward to keep pace with rising prices (maybe not right away and not for everyone, but over long periods of time and on average), but retirees don't have that safety net. True, Social Security payments are adjusted upward in an effort to keep pace with rising prices. But to the extent that a retiree is living off a portfolio anchored in fixed-rate investments, the payout from that sleeve of the portfolio will be just that--fixed. If prices go up, the purchasing power of that portfolio--and in turn the retiree's standard of living--goes down.

That's why inflation-indexed securities like TIPS, whose principal values adjust upward to keep pace with inflation, make so much sense as part of a retiree's fixed-income portfolio.

How Much Is Enough? So assuming you've decided you'd like to include inflation-protected investments in your portfolio, what's the right amount? At first blush it might appear that you'd want all of your fixed-income portfolio in TIPS; that's the tack embraced by some academics and other investment theorists. After all, if there's a bond investment that helps offset the corrosive effects of inflation, why would you want to forgo it for one that doesn't offer that protection?

The key reason is diversification. Although some corporate, foreign, and municipal bonds carry inflation protection, TIPS are the most widely available and liquid type of inflation-linked bonds, and most inflation-protected bond funds skew heavily or even entirely toward TIPS. That means an investor in search of an all-inflation-protected fixed-income portfolio would have to go out of his way to avoid a heavy emphasis on government bonds; at the same time, he'd hold relatively less in corporate, asset-backed, and other bond types, which will outperform Treasuries and other government-backed bonds at various points in time. There's also the fact that TIPS tend to be more interest-rate sensitive than other bond types.

So the answer to the question about how much retirees should hold in TIPS falls somewhere between zero and 100%. But where?

A survey of various target-date mutual funds geared toward investors in retirement shows that the major financial-services providers have not come to a clear consensus on this topic. Some income-oriented target-date funds have staked nothing in dedicated TIPS investments, while others have relatively robust weightings. For example, Vanguard's Target Retirement Income (VTINX) has about 30% of its fixed-income portfolio in a TIPS fund.

One starting point for determining an appropriate allocation to TIPS is to take a look at Morningstar's Lifetime Allocation Indexes, which were developed in conjunction with Ibbotson Associates. (Here's a document discussing how Ibbotson has allocated the assets for these indexes; in short, Ibbotson creates optimal portfolios based on the historical behavior of various asset classes.) The indexes geared toward investors of retirement age all make room for a healthy slice of TIPS--with most staking roughly 25% to a third of their fixed-income weightings in the category. And the larger the bond stake overall, the larger the percentage of that fixed-income weighting that lands in TIPS. For example, the allocation for a conservative investor who retired in 2000 includes a 69% fixed-income weighting, 23 percentage points (or 33%) of which is in TIPS. By contrast, the aggressive allocation for a new retiree has a 36% overall fixed-income weighting, 9 percentage points (or 25%) of which is in TIPS. This document includes TIPS allocations for various age bands.

Must Have Been the Right Place, Must Have Been the Wrong Time So far I've been discussing TIPS allocations in the context of strategic allocation--namely, long-term and hands-off strategies. But there are occasions when an asset class that makes perfect sense from a long-term strategic perspective becomes unattractive from a valuation standpoint. If you've decided your portfolio needs TIPS, does it make sense to barrel in there regardless of the current market environment?

Clearly, TIPS are far from the screaming buy they were in late 2008 and early 2009, when these securities were priced as though inflation would never rear its head again. TIPS went on to enjoy a tremendous runup for the rest of 2009 and skyrocketed again in 2011, eventually resulting in negative real yields for TIPS. There's also the issue of how rising interest rates would affect TIPS. Although they wouldn't likely be as adversely affected as nominal Treasuries, they wouldn't be immune to a sharp upward spike in interest rates.

Given that backdrop, TIPS investors might be inclined to take a more tactical approach, adding to TIPS when they appear cheap and lightening up when they're dear, or moving assets among TIPS of various maturity ranges. Given that most investors would prefer to be more hands-off, however, I'd advise a simpler approach to mitigate the risk of buying TIPS at a high point. If you've determined that your portfolio is light on TIPS now, consider dollar-cost averaging into a high-quality, low-cost TIPS fund during a period of a year or longer. Harbor Real Return (HARRX) and Vanguard Inflation-Protected Securities (VIPSX) are two of our analysts' favorite actively managed funds; iShares Barclays TIPS Bond (TIP) is a worthwhile exchange-traded fund choice.

A version of this article appeared March 21, 2012.

See More Articles by Christine Benz

[Feb 28, 2013] Investment and Stock Market News

Corporate credit and high yield bonds are somewhat exuberantly and irrationally priced.
The Buzz

Get used to lower returns on stocks and bonds, Pimco's founder and co-chief investment officer Bill Gross told investors in his monthly letter.

Gross, who oversees Pimco's Total Return Fund (PTTRX), said that investors are entering a period of what he calls "rational temperance." By that Gross means that investors should expect gains from stocks, and corporate and high-yield bonds to be more muted.

Corporate credit and high yield bonds are somewhat exuberantly and irrationally priced. "Still that doesn't mean you should vacate your portfolio of them," Gross writes. Instead prepare to see returns in the range of 3% to 4%, instead of the double-digit gains enjoyed in recent years.

Gross leads off his letter citing a famous question posted by former Fed Chairman Alan Greenspan in 1996: "But how do we know when irrational exuberance has unduly escalated asset values?"

Related: Bill Gross: Be very afraid of the markets

Reiterating that Greenspan's question quickly invokes images of the wreckage of the dot-com bust or the 2008 financial crisis. Gross offers a less ominous forecast. "On a scale of 1-10 measuring asset price 'irrationality', we are probably at a 6 and moving in an upward direction," he writes.

February's letter is also decidedly less scary than his writings just a month ago, when warned of the dangers of inflation and the flood of cheap money.

He suggests caution, but not running for a bunker. "Be rational, be optimistic if so inclined, but temper it with a commonsensical conclusion that we have seen something similar to this before, and that previous outcomes seldom matched the exuberance."

In the meantime, it's okay to stay in stocks and bonds.

[Feb 14, 2013] Vanguard's economic and investment outlook

Any long term bonds are problematic as at the end of the day rates will climb up... But the real question is whether this happens in three years, or 10 years or 20 years.

Secular growth outlook

...The U.S. economic recovery is likely to persist at a reduced trend pace of 2% real GDP growth, compared with the historical trend growth rate of 3.5%–4.0%.

U.S. inflation.

Trend inflationary pressures are currently modest, with the risk of returning to the high inflationary regime of the 1970s and early 1980s over the next several years estimated to be less than 10%. Over the next ten years, our simulations project a median inflation rate averaging about 2.0%–2.5% per year for the U.S. Consumer Price Index (CPI).

Monetary policy.

The target federal funds rate is likely to remain near 0% through at least 2014, with a bias toward the Federal Reserve remaining on hold even longer. The return on cash will likely average less than 2% over the next ten years through 2022, with real (inflation-adjusted) short-term interest rates remaining negative for some time, a classic example of "financial repression."

The eventual removal of extraordinary U.S. monetary policy accommodation may prove to be more volatile than currently anticipated. U.S. Treasury yields. Based in part on our inflation outlook, we expect the yield on the 10-year Treasury bond to remain in its current range of 1.5%−2.5% over the next year at least, before eventually normalizing toward the 3.5%−4.5% range over the next decade.

Bond market returns.

Regardless of the direction of U.S. interest rates over the next several years, the return outlook for fixed income is very muted, with an elevated risk of loss given the present low income levels. The expected long-run median return of the broad taxable U.S. fixed income market is centered in the 1%–3% range and thus most closely resembles the historical bond returns of the 1950s and 1960s.

That said, it is important to note that the diversification benefits of fixed income in a balanced portfolio remain under most scenarios; the bottom decile of expected U.S. bond returns through 2022 remains higher than its equities equivalent.

[Feb 14, 2013] 30 Year Prices At 3.18%, Highest Yield Since April 2012 by Tyler Durden

02/14/2013 | Zero Hedge

Many were looking at today's $16 billion 30 Year bond auction to see if the same weakness that was exhibited by yesterday's tailing 10 Year would repeat. This did not happen, and in fact today's auction, concluding this week's offering of paper, was probably the tamest of the lot. ...

The high yield of the auction came inside the WI, at 3.18% with 85.2% allotted at the high. The Bid To Cover also did not indicate any particular weakness, as the 2.74 B/C, just a fraction below January's 2.77, was well above the 12 month trailing average of 2.61.

More importantly, unlike the Indirect weakness seen in this week's prior auctions, Indirects took down 36.4% of the offering: nothing to write home about, but also better than the 12 TTM of 34%. Directs were responsible for 14.5%, which left 51.2% for the dealer.

Finally, while the pricing yield was the highest since the 3.23% seen in April of 2012, at this point what happens at the long end is largely meaningless, as the marginal buyer is virtually non-existent. Recall that as the Treasury itself said, "In Feb 2013, Fed Will Buy 75% Of New 30y Treasury Supply."

And that is all that matters to quell concerns of any great rotation in or out of bonds.

[Feb 13, 2013] Gross's Treasury Holdings at 6-Month High, Mortgages Cut by Susanne Walker

Economies are too highly levered for any central bank to raise interest rates for years.

Bill Gross raised the percentage of Treasuries held in his flagship fund to 30 percent in January, the most since July, after advising investors to purchase five-year Treasuries and inflation-indexed debt amid monetary policy.

... Gross cut mortgages holdings to 37 percent, the lowest since August 2011 after holding 42 percent in December. Newport Beach, California-based Pimco doesn't comment directly on monthly changes in its portfolio holdings.

Gross has been cutting back on mortgage holdings since April 2012 when the fund held 53 percent of the securities, the highest since June 2009.

Gross had initially boosted his bets on government-backed mortgage securities with low coupons before the Federal Reserve in September launched its third round of bond buying with a focus on those notes, in a bid to bolster consumer finances and the housing market. Gross said in a Jan. 4 interview on Bloomberg Television that gains from the debt "are over in terms of the capital appreciation."

...Investors should purchase Treasury five-year maturities and avoid longer-term bonds, which reflect future inflation, Gross said in a Twitter post on Feb. 8, adding that economies are too highly levered for any central bank to raise interest rates for years.

Investors should protect their holdings with inflation-linked bonds as the Fed's quantitative-easing stimulus strategy of buying assets will ultimately fuel inflation, Gross said in an interview on Bloomberg Television on Feb. 4.

Holdings Categories

The Total Return Fund kept its holdings of

The fund's investment-grade credit holdings dropped to 9 percent in January, from 10 percent the previous month.

High-yield debt remained steady at 2 percent.

The Total Return Fund gained 10.4 percent in 2012, beating 95 percent of its peers, according to data compiled by Bloomberg. Treasuries returned 2.2 percent last year, according to Bank of America Merrill Lynch indexes.

The Pimco fund's government and Treasury debt category includes fund holdings of U.S. Treasury notes, bonds, futures and inflation-protected securities.

Pimco, a unit of the Munich-based insurer Allianz SE, managed $2 trillion in assets as of Dec. 31.

To contact the reporter on this story: in New York at

It Sure Feels Like A Recession by Tyler Durden


While stocks suggest all is well, and anecdotal macro data (seasonally slandered by fiscal cliff drag-forwards and 'weather') might offer hope that green shoots are back; one glance at the following chart of US, Europe, and Asia (ex-Japan) EBITDA tells a very different story.

With cashflow clearly barely budging, is it any wonder that companies are creating conservative balance sheets? It sure feels like a recessionary environment...

[Feb 11, 2013] Irwin: No Bond Bubble

black dog wrote on Mon, 2/4/2013 - 9:10 am

quickest 'walk back' ever by CR?

[no commentary by CR but i took it as implied]

"The question is: Does completion of the PIMCO building mark the top for bond prices?"

Read more at Calculated Risk: Does this mark the top for bond prices?

[Feb 11, 2013] Goodbye Bond Vigilantes, Hello Brent Vigilantes by Tyler Durden

02/11/2013 | Zero Hedge

The flood of Central Bank liquidity into the world's asset markets has worked wonders for the optics of 'wealth' in the last few years. While correlation is not causation, the divergence from any sense of fundamental reality (and sheer miracle expectations of the future) simply reflect back to the leaking of that central bank liquidity into risk markets everywhere. However, there appears to be a limiter - or self-governor - that comes along every few months to tap the world's 'belief in economic miracles' on the shoulder. With the world's sovereign bond markets now repressed or 'managed';

The only 'self-regulator" (almost) beyond the control of the central banks is simply, the cost of energy - and a new breed of Brent VigilantesTM

[Feb 10, 2013] Pimco Total Return ETF A Big Idea In A Small Package by Tom Lydon

February 8, 2013 |

During its first couple months of trading, Pimco Total Return Bond ETF (BOND) showed that good things do indeed come in small packages, as the nimble portfolio allowed Bill Gross, co-chief investment officer at Pacific Investment Management Co., to outperform the famous mutual fund he also oversees.

The actively managed ETF has ballooned to over $4 billion in less than a year, but we don't expect the fund to become a victim of its own success and size.

BOND is known as the ETF version of the famous Pimco Total Return Mutual Fund (PTTRX)-both are managed by the bond guru-except that BOND is required to disclose its portfolio holdings on a daily basis as an active ETF. The ETF version has also been outperforming the flagship fund, gaining 11.75 percent since its inception on February 29, 2012, through February 4, 2013, compared to the 7.6% gain in PTTRX over the same period.

Over that time, some have pointed to two factors that helped BOND outperform its predecessor: the lack of derivatives and legacy positions.

Previously, there was a moratorium on the use of derivatives in new ETFs. As such, BOND was launched without the use of derivative securities to gain exposure to bonds. Consequently, this put the two fund versions on opposite sides of the spectrum regarding portfolio make-up and total number of holdings. BOND would directly hold bonds and currently holds around 771 components, whereas PPTRX receives various bond exposures through swap agreements and can hold upwards of 19,000 components.

While swaps allow the fund to efficiently tap a segment of the bond market, the swap agreements can limit a manager's ability to pick out individual credits since swaps are based on a broader index. As a result, re-allocating assets becomes expensive and risky for the portfolio manager, and can have a negative impact upon the market.

However, the Securities and Exchange Commission lifted its restrictions on active ETFs' derivatives use in early December 2012. Pimco, in a filing last year, stated that it would use derivatives in the ETF if the SEC should lift the ban.

Additionally, BOND was created with $10 million in assets under management, and Gross was able to begin with a clean slate without "legacy positions." The past year's outperformance in the BOND ETF illustrates how a highly skilled manager can add value in a relatively small portfolio.

When BOND first launched, Gross said it was much different than managing the huge Pimco Total Return Fund due to the flexibility of running a small ETF. "It was like a young deer able to bounce quickly through the forest," he recently said at the 2013 ETF Virtual Summit.

A Closer Look At BOND

The Pimco Total Return ETF, like the flagship fund, holds exposure to a basket of fixed-income assets. The ETF has an effective duration of 4.83 years. The effective duration is a measure of a security's price sensitivity to change in interest rates, and a lower effective duration would translate to a smaller hit in the principal if interest rates were to rise. The ETF comes with a 1.62% 30-day SEC yield and a 0.55% expense ratio.

As of the end of 2012, BOND holdings include government Treasuries (16 percent), government agencies (2 percent), mortgage debt (37 percent), investment grade credit (6 percent), high-yield credit (4 percent), non-U.S. developed (11 percent), emerging markets (1 percent), municipals (10 percent), money market/cash (9 percent) and (4 percent) in others, such as convertibles and preferreds.

Gross has mentioned that the ETF is free to overweight certain fixed-income sectors, such as Treasury Inflation Protected Securities (TIPS) and municipal debt, as well as international bonds in countries with economies growing faster than the U.S. that are less leveraged.

Country exposure includes U.S. (89.9 percent), Mexico (7.4 percent), U.K. (5.9 percent), Italy (4.5 percent), Spain (3.4 percent), Norway (2.0 percent), France (1.7 percent), Japan (0.9 percent), Canada (0.8 percent), Brazil (0.6 percent), Netherlands (0.4 percent), Ireland (0.3 percent), South Korea (0.3 percent), Luxembourg (0.1 percent) and Cayman Islands (0.1 percent).

Gross Warns Of Consequences To Loose Monetary Policies
At the ETF Virtual Summit, Gross stated that quantitative easing from the Federal Reserve and other central banks along with extremely low interest rates have provided an "artificial lift" to bonds. As a result, most markets are "bubbled."

Nevertheless, Gross said he doesn't see a major bubble like the dot-com craze or U.S. housing market that will dramatically pop, because central bank policies will continue.

"But risk assets don't produce what they used to produce," Gross said. At these levels he says there is risk in terms of higher bond yields and lower price-to-earnings ratios for stocks. While, the BOND manager was not forecasting a recession, he did anticipate slower economic growth.

Meanwhile, zero-bond interest rates are having an increasingly negative effect on certain business models, such as banks and insurers, and pension funds are having a hard time meeting obligations, Gross said. To keep interest rates low in the U.S., the Federal Reserve is writing about $1 trillion in checks a year, which buys 80% of Treasuries.

Consequently, Gross advised investors to be careful with long-term bonds that could get hurt if inflation picks up after 2013.

Bill Gross: "Credit Supernova!"

Tyler Durden on 01/31/2013

Our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic – it is running out of energy and time. When does money run out of time? The countdown begins when investable assets pose too much risk for too little return; when lenders desert credit markets for other alternatives such as cash or real assets.


"We Are Doneski Gorgeous!" - How Bond Trading On Wall Street Really Works

Submitted by Tyler Durden on 01/28/2013 - 20:09

"Jesse Litvak arranged trades for customers as part of his job as a managing director on the MBS desk at Jefferies. Litvak would buy a MBS from one customer and sell it to another customer, but on many occasions he lied about the price at which his firm had bought the MBS so he could re-sell it to the other customer at a higher price and keep more money for the firm.

On other occasions, Litvak misled purchasers by creating a fictional seller to purport that he was arranging a MBS trade between customers when in reality he was just selling MBS out of his firm's inventory at a higher price.

Because MBS are generally illiquid and difficult to price, it is particularly important for brokers to provide honest and accurate information.

The SEC alleges that Litvak generated more than $2.7 million in additional revenue for Jefferies through his deceit. His misconduct helped him improve his own standing at the firm, as his bonuses were determined in part by the amount of revenue he generated for the firm."

Direct Bidders Take 30% Of 2 Year Auction As Indirect Flight Continues

Submitted by Tyler Durden on 01/28/2013 - 13:16

There may be rotation out of bonds (there isn't), but don't tell the Direct bidders, who submitted a total $22 billion in bids for today's $35 billion Two Year auction, and well below last month's $18.2 billion, and were hit on just under half of this tendered amount, taking down a massive $10.4 billion, or precisely 29.99% of the entire auction. This was the second highest Direct takedown in history only less than October's 35.41%. What is curious is that Indirect buyers, traditionally strong buyers of the 2 Year point on the curve, and taking down on average 31% in the past year, were left with just 18% of the auction, slightly better than last month's record low 17.7%, and the second lowest as far as our time series goes. The balance of 52%, as always, was left to the Primary Dealers, who will promptly turn around and flip it back to the Fed at the first opportunity now that the Fed is monetizing across the curve and not just to the right of the belly. Other metrics of today's auction included a 3.77 Bid to Cover, roughly in line with the trailing 12 month average, and higher than December's 3.59, while the final high yield was not surprisingly, 0.288, just inside of the 0.289% When Issued at 1 PM trading. Overall hardly a flight from Treasurys, at least in the segment where the nominal return is absolutely laughable, and an indication that nobody believes for a second that ZIRP may be ending any time soon.

PIMCO On Hedging: It Pays To Be Countercyclical

Submitted by Tyler Durden on 01/24/2013 - 18:33

It is a well-known phenomenon that quiet markets, low volatility and a lack of visible risks on the horizon can lead to complacence and increasingly dangerous, leveraged positions. In doing so, these market conditions set the stage for the next cycle of deleveraging and losses.

What has also become apparent is a predictable behavioral response to this cycle: when the markets experience large losses, tail risk hedging comes back into fashion; on the other hand, when markets are quiet, investors can quickly forget the pain suffered during prior crises.

As PIMCO's Vineer Bhansali points out, the current hedging characteristics are comparable to 1/15/2008, right before the crisis. He adds that, for many investors, it paid to have tail hedges then. If investors believe we are still investing in a dangerous, potentially even more dangerous, environment, they should consider hedging; adding that in their view, tail hedging is not just a trade, but an asset allocation decision for robust portfolio construction. In this light, today's valuation levels make it easy to be countercyclical and add to tail hedges. Perhaps today's VIX-SPX decoupling is the first sign?

[Oct 02, 2012] PIMCO America could 'resemble Greece' before 2020

the United States must cut spending or raise taxes by 11% of gross domestic product (GDP) over the next five to ten years in order to preserve its role as a financial safe haven.

PIMCO chief Mr Gross said that the United States must cut spending or raise taxes by 11pc of gross domestic product (GDP) over the next five to ten years in order to preserve its role as a financial safe haven.

"If we continue to close our eyes to existing 8pc of GDP deficits, which when including Social Security, Medicaid and Medicare liabilities compose an average estimated 11pc annual 'fiscal gap,' then we will begin to resemble Greece before the turn of the next decade," Mr Gross wrote in his monthly note.

Mr Gross, who has referred in past outlooks to the unsustainable debt pile the United States continues to accumulate, added that stocks will be "singed" and bonds will be "burned to a crisp" if the United States does not handle its debt, and that "only gold and real assets will thrive."


The US will never become like Greece because it controls its own currency. It can pay off its debts by printing money. However, if it fails to get its balance of payments and budget deficit under control it will steadily lose world influence.

[Oct 15, 2011] PIMCO And Bill Gross Apologize For Poor Performance

October 15, 2011 | Seeking Alpha

Bill Gross just released a letter in which he apologized to investors for the poor performance of Pimco Total Return. For the year, Pimco has underperformed its index, the BarCap Aggregate Bond, by more than four percentage points.

For a top-performing fund like Pimco Total Return, this kind of underperformance is very unusual. The type of public apology Gross has issued is also very unusual and laudatory. However, in my view, the tone of the letter is overly apologetic given how well the fund has done over a long period. In any case, here is an excerpt [emphasis added]:

…The simple fact is that the portfolio at midyear was positioned for what we call a "New Normal" developed world economy – 2% real growth and 2% inflation. When growth estimates quickly changed it was obvious that I had misjudged the fly ball: E-CF or for non- baseball aficionados – error centerfield.

So where do we go from here? Our internal growth forecast for developed economies is now 0% over the coming several quarters and the portfolio more accurately reflects this posture….

0% growth ahead!

What went wrong with Total Return this year and what are they doing about it? Read on.

Earlier this year, Bill Gross, Mohamed El-Erian and the rest of the Pimco brain trust thought we would see modest economic growth in the range of 2% after inflation growth. They shortened the duration (weighted average maturity) of the portfolio and moved away from Treasury bonds.

Now, their view has changed dramatically. In fact, they foresee very weak economic growth - zero percent growth in fact – in the U.S. and other developed countries. As a result, they are extending the duration of Pimco Total Return (PTTRX). This is quite a change from earlier this year.

Mohamed El-Erian: Between concerned and scared

The impetus for these changes is a very weak economic outlook as expressed in this blog post from Pimco's CEO Mohamed El-Erian [emphasis added]:

…At an event last week in Washington, I was asked about my feelings about the global economy. My response was "between concerned and scared." …We are here because of the interactions of three distinct, yet inter-related forces: poor economic growth, excessive contractual liabilities, and disappointing policy responses. The result is that western economies are getting trapped by the lethal combination of an unemployment crisis, a debt crisis, and mounting fragilities in the banking sector.

The longer this persists, the greater the risk that even the healthiest parts of the global economy, and thankfully there are still quite a few, will get dragged into a prolonged period of economic and financial stagnation…

Earlier this year, Bill Gross thought higher interest rates were coming so he positioned the portfolio accordingly. Higher rates did not happen and, as all good portfolio managers do, he determined that his outlook was incorrect and he changed course. Here are two ways in which Pimco Total Return is changing its portfolio:

Going long & going overseas

Going long: The fund has gone about as long as it can go. In six months, it has increased the portfolio duration from 3.6 years to its current level of 7.14 years. Kevin Winters of Pimco gave me some clarification about the fund's duration policy. The fund compares its duration to that of a bond index, the BarCap Aggregate Bond Index. Essentially, Pimco Total Return's duration can be as much as two years less than the duration of the index. Or, it can be up to two years longer than the index duration. Right now, the fund is about two years over the index duration so Pimco is at the upper end of its policy range.

Going overseas: Another portfolio change is that the fund is moving more assets into securities from non-U.S. countries. The portfolio percentage in these types of securities is now 21% in bonds from developed countries alone plus a smaller amount in bonds from emerging markets. The foreign holdings include positions in securities from Canada, Great Britain and Mexico.

With these changes, Pimco is clearly taking a stand that economic activity across the globe is weakening and that interest rates will be soft. If Pimco's view is correct, and I think it is, this bodes well for bonds, but not for the economy as a whole.

Here is a link to Pimco Total Return's portfolio statistics through September 30, 2011.

Hat tip for Mea Culpa letter: Dealbreaker Hat tip: Kevin Winters and Cort Escherich at Pimco Disclosure: Kurt Brouwer owns shares in Pimco Total Return (PTTRX)

[Oct 14, 2011] Bill Gross Issues "Mea Culpa" Sees 0% Growth For Developed Economies Over The Coming Quarters by Tyler Durden

By now it is no surprise that Bill Gross has not exactly "caught the inflection points" in the market in the past year. Of recent note, as Zero Hedge first reported three days ago, in September he massively extended the duration of his holdings in an attempt to catch up with Operation Twist just in time for the 30 Year to have its biggest drop in quite a while. Which may explain why he has released a letter to investors titled, simply enough, "Mea Culpa" in which he essentially apologizes for underperforming the market, when he says "I am having a bad year". That's fine, and so are your clients. But what is far more troubling Bill, is that your corporate parent, Germany's Allianz, as is now well known is the entity pursuing the conversion of the EFSF into a multi-trillion "insurance" fund to backstop even greater trillions of corporate and sovereign fixed income exposure. Please tell us Bill that this is not your doing: that it is not your "influence" that has been upstreamed to corporate, and is forcing Europe's taxpayers to foot the bill for your, and others', "bad year."

Because while everyone can make a mistake, those of us who are not too big to fail, read manage $1.2 trillion fixed income portfolios, get punished for said mistake. It is far more reprehensible when you come crawling to the same taxpayer and engage in the same activity you so loudly complain about in every single letter (there is a reason why the broader population has grown to loathe Warren Buffett).

Anyway, with that aside, here is what Gross sees as happening in the future: "So where do we go from here? Our internal growth forecast for developed economies is now 0% over the coming several quarters and the portfolio more accurately reflects this posture." Well, while Pimco may have been spot on 10 days ago with this assessment, the subsequent 10%+ short covering squeeze has forced a dramatic sell off in the 10 Year (the 10s30s has flatten substantially in recent days). And naturally, in this world in which effect implies cause, the moves in the market now are taken to represent an avoidance of the recession.

Granted that makes absolutely no sense, but such is bizarro world. So our only question is - did Gross just jinx the recession out of existence?

Bill Gross Goes Massively Short Cash As He Bets The Newport Farm On Uber Duration

Submitted by Tyler Durden on 10/11/2011 - 19:02 Bill Gross Mortgage Backed Securities Total Return Fund

Two things stand out in the just released September holdings update of Pimco's flagship Total Return Fund:

That's either what is called betting one's farm on Operation Twist, or, betting one's farm that the next thing to be purchased by the Fed in QE3 or QE4 depending on how one keeps count, will be Mortgage Backed Securities.

As a reminder, the last time Gross saw such a surge in MBS holdings in the TRF was side by side with the phased out roll out of QE2 when it was unclear if the Chairman would be buying USTs or MBS.

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kito bill had his ass handed to him when he traded based on the naive idea that nobody would buy treasuries after the fed walked away. hasnt worked out to well and wont for a while. there will be no qe3, i dont even understand why people even use the term anymore. qe3 is going the way of the latin language.


Looks like he was fully "invested" in Op Twist - decreased front end and increased belly as well as long end of the curve.
Gross got fooled once. Not again. Massive mortgage refi plan coming (Bruce Krasting last month) to let home owners refi (under water, behind, what ever) and the bond holders, banks, investors, will accept the plan even though it will extend the duration of being made whole. Curtain #2 is worse.
Everybodys All ...
It looks to me like he is counting on Obama/Bernanke to buy the household mortgage obligations in the form of QE3. Wrong for now.
Pancho Villa
Everyone that I know with a mortgage is in the process of refinancing now. Maybe he is assuming that most of the long duration stuff will soon be refinanced, so that it is effectively short term debt which pays long duration rates.

But if he is purchasing newly created long term mortgages and interest rates go up after operation twist, he would be stuck.

[Apr 09, 2011] The danger of buying on top is too high. You do not need to preserve high-yield for dubious 7%:

1 Yr Total Return (2009-12-31):39.09%

Worst 1 Yr Total Return (2008-12-31): -21.29%

0.7871 * 1.39=1.094069

That means that 2008-2009 performance was just +9%. Worse then stable value.



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