Largest bond fund drops all government debt and then some

Cutting spending to reduce the deficit is too much for partisan politics to manage, according to the largest bond fund in the world. The Pimco Total Return Fund has gone into negative territory on U.S. Treasuries. This is also known as taking a short position on the debt piling up in the U.S. government.

What Pimco will do for the Treasury

The Nation’s triple-A bond rating may be endangered and Pimco is betting on the debt problem driving up rates of interest. To get to a short position on Treasury bonds, Pimco sold borrowed securities on a bet it can buy them back later at a lower price. United States government debt has been cautioned by Pimco head, Bill Gross. Gross sold all of Pimco’s treasury holdings in February causing lots of concern. In March he made $7 billion bet against the securities.

There was a drop from zero to negative three in the $236 billion Return Fund held in the U.S. Treasury of Pimco. The fund’s money equivalents rose to 31 percent of the fund’s assets, a $73 billion bet the good times are about to end in the markets.

The possession of Pimco as short

Gross has no faith that Congress will be able to solve the deficit problem. The government is “out of Greeking the Greeks,” according to Pimco’s April newsletter. Greece’s massive government debt forced its leaders to ask for a bailout from the European Union to prevent a global chain reaction of financial failure. Greece’s financial issues were only a fifth of the debt that America has.

Will market play into Pimco’s hands

Gross is assuming a sort position on U.S. Treasuries and hoping the market falls in his favor. John Carney at CNBC warns investors to regard Gross’s machinations with caution. Wall Street has been unreliable for some time now, and something that seems right, might in fact be “dangerously wrong.”

Articles cited

Associated Press

finance.yahoo.com/news/PIMCO-goes-short-US-rb-3790514655.html?x=0

Fortune

finance.fortune.cnn.com/2011/04/10/pimcos-gross-betting-against-u-s-debt/

Christian Science Monitor

csmonitor.com/Business/Latest-News-Wires/2011/0412/Bond-fund-and-many-others-bearish-on-US-debt

Reuters

reuters.com/article/2011/04/11/us-pimco-bonds-short-idUSTRE73A2IR20110411