The world's largest mutual fund is buying more bonds but should you, too?
Interest rates are up and bond prices are down. So, what does the world’s largest mutual fund do? Buy more bonds.
While it allocated one percent more to Treasuries (now 38%), Pimco’s $268 billion Total Return Fund also bought mortgages. But June wasn’t a happy month for the fund, taking a hit of 2.6%.
Pimco is making a timing play, betting on rates to fall in the short term. Founder and co-CIO Bill Gross anticipates no major Fed policy changes until 2016, he says on Twitter. Speaking on CNBC’s Squawk Box this morning, Mohamed El-Erian, Pimco CEO & co-CIO, says:
“Short term, we see a 10-year yield going down, price going up. Long term—three to five years—I think that we are in a rising rate environment that the market is going to have to adjust to.”
In other words, they’re buying a lot of something they know will eventually fall, but it will be a few years before that happens.
Are Gross and El-Erian right? What do the charts and fundamentals say? To answer these questions, we ask Talking Numbers contributors Enis Taner, Global Macro Editor at RiskReversal.com, and Richard Ross, Global Technical Strategist at Auerbach Grayson, to look at interest rates and the ProShares UltraShort 20+ Year Treasury ETF (TBT), which tracks US Treasury bonds.
Watch the video above to see Taner and Ross analyze what’s next for bonds.