If the largest bond fund in the world is selling government-related debt, should you get out?
At $251 billion, Bill Gross’ Pimco Total Return Fund isn’t just the largest bond fund, it’s also the largest mutual fund in the world.
And now the Bond King is selling debt from its portfolio – specifically, government-related debt.
Recent data posted on the Pimco website show that the Total Return Fund has lowered its holdings of government debt from 39% to 35% during the month of August.
That’s not the only thing that’s gone down with the Total Return Fund; over the last four months, its assets fell 14% – $41 billion – as losses and investor withdrawals took its toll.
Some of the loss had to do with the giant selloff in US Treasury bonds beginning in May. That’s when Federal Reserve Bank Chairman Ben Bernanke hinted to Congress that the Fed may soon begin tapering its $85 billion per month bond-buying program known as “quantitative easing” (“QE”). This policy had the Fed purchase US Treasury and mortgage bonds, driving up prices and thus lowering yields (due to the way they work, bond yields are inversely related to bond prices).
Bond investors, worried the Fed may no longer be there to be the largest buyer of bonds on a regular basis, began getting rid of their bonds. This sent rates higher. From May 21 to August 30, yields on the benchmark US Treasury 10-Year Note went from 1.94% to 2.75%.
So, now that it seems Bill Gross is cutting down on government debt from Pimco’s, is it time for other investors to do the same?
To answer that question, Zachary Karabell, founder and president of River Twice Research looks at the fundamentals while Todd Gordon, founder of TradingAnalysis.com, looks at the charts.
Should you sell your US bonds?
Watch the video above to see Karabell and Gordon analyze what’s next for bonds.
More from Talking Numbers:
- Mutual Funds
- government debt
- Bill Gross