Tuesday, March 10, 2009

PIMCO Holds Almost $120 Billion In MBS

According to latest holding disclosures Bill Gross is elbow deep in the U.S. mortgage mess. Of $138 billion in total assets under management, PIMCO has 86% invested in mortgage-backed securities. Additionally, the recently demustachioed Newportian has been buying treasuries through the nose: from January to February, his TSY holdings have increased from -2% (oops, someone was short Uncle Sam. j/k: he is merely another fan of the repo trade) to 15%. And as the observant ones will note, just these two add to over 100%, this is indeed the case: PIMCO was using the highly generous Fed to borrow cheap, cheap cash resulting in a -25% cash position in February. Keeping all this in mind, explains Gross' fervent pitch to the government to buy Treasuries.
In February, Gross said it was “incumbent” upon the Federal Reserve to buy Treasuries but that he wouldn’t follow the central bank’s lead. Gross missed out on the biggest Treasury market rally in 14 years in 2008, saying that yields were too low because inflation will accelerate as the deficit surges.

“We wouldn’t buy Treasuries but we would buy bonds that are correlated and related to Treasuries with a higher yield,” Gross said in a Feb. 5 interview on Bloomberg Television.

A little odd that the last statement contradicts his actual position statement but when you are the 4th branch of government things have a way of being a little extra liquid... and permitted.

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Anonymous said...


PIMCO has over $700 bn under management. The Total Return Bond Fund has a size of $138 bn. Crucial distinction.

The TR bond uses a benchmark (BarCap US aggregate) that includes some 45% of agency MBS and 40% Treasuries. Since Treasuries yield so little, and agency MBSs are in fact back by the government, PIMCO's logic goes, it makes a lot of sense to own the latter as a substitute for the former.

I also understand that recent Ts coming into PIMCO's portfolios are mainly TIPs, also underpriced compared to nominal Ts.


Anonymous said...

Their benchmark is bogus.....they are a hedge fund plan and simple.

Anonymous said...

I think it's time that little bitch Bill is left holding the bag!