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Monday, April 11, 2011
Bill Gross, manager of world's biggest bond fund at PIMCO, has cut government linked debt to a negative percentage of his Total Return Fund's $236 billion portfolio and is publicly renouncing Treasuries as an investment choice. This is his "everybody out of the pool" statement. Cash equivalents now comprise 31% of portfolio assets, up from 23%, the highest percentage in 4 years.
Gross is concerned about the impact of the Federal Reserve ending its QE 2 Treasury buying program. He asked, “The question remains, when the Fed stops buying Treasuries, does the private sector take the baton and run the last leg of the relay race?”
This is an important week in this unfolding drama due to some important inflation data being reported as well as Treasury auctions taking place. On the inflation front, the market will get CPI , PPI , and import price reports. The core rate of the CPI (ex food & energy) is expected at 0.2% (roughly 2.4% annual rate). Above that and it could spook the market.
The key auctions will take place on Wednesday and Thursday. On Wednesday, the Treasury auctions 10-year notes and on Thursday the 30-year bond. How these auctions go depends a lot on investor's inflation outlook.
This is all playing out with the ongoing budget talks and looming debt ceiling issues adding a bit of spice. It's not hard imagining a perfect storm brewing.