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Pimco Caught Out By Strength Of Gilts

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http://www.ft.com/cms/s/0/a4018940-8f20-11df-a4de-00144feab49a.html

Pimco caught out by strength of gilts

By David Oakley, Capital Markets Correspondent

Published: July 14 2010 10:57 | Last updated: July 14 2010 10:57

Pimco, the world’s second-biggest bond fund manager, has backtracked on its aggressive position of selling UK government bonds after the impressive performance of the gilts market this year.

Pimco, which took a negative view on the UK last year because of the widening budget deficit and poor public finances, has switched its stance to neutral or “agnostic” on gilts, according to people familiar with the situation.

Bill Gross, co-head of Pimco, in January described the UK government bond markets as so volatile that they were “resting on a bed of nitroglycerine”.

At the time, most investors feared that the worsening public finances and the uncertain political outlook before the general election in May would spark a big sell-off in prices.

However, the reverse has happened. Gilts have been one of the best-performing government bond markets of the year, becoming a haven from the troubles in the eurozone in recent months.

Gilt yields, which have an inverse relationship with prices, have fallen more than 20 per cent to 3.39 per cent since this year’s peak of 4.27 per cent on February 19.

Gilts have mainly been buoyed by buying of international investors, particularly Asian funds that switched out of peripheral eurozone bonds as the eurozone debt crisis deepened.

Investors have also been reassured by the new pact between the Conservatives and Liberal Democrats following the deadlocked May general election that produced a hung parliament. The Con-Lib pact’s promise to tighten fiscal policy sharply over the next five years has improved sentiment and even eased fears that the UK might lose its prized triple A credit rating.

Most investors have changed their forecasts for the gilts market in recent months, with some even saying gilt yields could fall further amid ongoing worries over European bank stress tests and the peripheral eurozone economies.

Pimco were not outright sellers of gilts, but set up a relative trade against Bunds, which fund managers say has been profitable.

Gilts have on occasion outperformed German bonds – but since the start of the year Bund yields have fallen more than those of gilts. Ten-year gilt yields have fallen 16 per cent while Bund yields have dropped 20 per cent.

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Dont tell Realistbear - Bill Gross is his idol and old SoCalif neighbour :rolleyes:

You're right. We'll wait and see if he notices the thread. He's been around this morning ;)

Edited by AvidFan

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http://www.ft.com/cms/s/0/a4018940-8f20-11df-a4de-00144feab49a.html

Pimco caught out by strength of gilts

By David Oakley, Capital Markets Correspondent

Published: July 14 2010 10:57 | Last updated: July 14 2010 10:57

Rare for Big Bill Gross to call it wrong. The UK has avoided all of the consequences of the Brown bubble--its as if there never really was a crisis or debt problem. Silly Bill.

TBH, I think Bills prophecy was the right one but he called it too soon. All of the poisons that have been lurking in the mud have yet to hatch out. Don't forget, we are the only country with a housing bubble not to see a correction.

I am quite heavily with Bill in this one (doing well this year so far--could be double digit again):

PIMCO Total Return CL D (PTTDX)

SummaryPerformance & RiskRatingsCompositionFees & Features

YTD Performance as of 07/13/2010 5.67%

1 Year* 12.98%

3 Year* 10.78%

5 Year* 7.11%

Edited by Realistbear

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Rare for Big Bill Gross to call it wrong. The UK has avoided all of the consequences of the Brown bubble--its as if there never really was a crisis or debt problem. Silly Bill.

TBH, I think Bills prophecy was the right one but he called it too soon. All of the poisons that have been lurking in the mud have yet to hatch out. Don't forget, we are the only country with a housing bubble not to see a correction.

I think a totally distorted market of forced buyers and backed up by infinite QE gives a reasonable explanation.

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Rare for Big Bill Gross to call it wrong. The UK has avoided all of the consequences of the Brown bubble--its as if there never really was a crisis or debt problem. Silly Bill.

TBH, I think Bills prophecy was the right one but he called it too soon. All of the poisons that have been lurking in the mud have yet to hatch out. Don't forget, we are the only country with a housing bubble not to see a correction.

I think he called it too early. Next year maybe. I really don't see the UK being that big a basket case. Housing market crash - yes. But spiralling interest rates to defend a collapsing pound and an over-spending government... nope.

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Rare for Big Bill Gross to call it wrong. The UK has avoided all of the consequences of the Brown bubble--its as if there never really was a crisis or debt problem. Silly Bill.

TBH, I think Bills prophecy was the right one but he called it too soon. All of the poisons that have been lurking in the mud have yet to hatch out. Don't forget, we are the only country with a housing bubble not to see a correction.

We are not the only housing bubble without correction RB! THERE IS AN EVEN BIGGER ONE in Australia and another in parts of Canada - eg Vancouver , now with the highest prices in the world on income multiples. Sydney has overtaken London on same basis for the first time I believe. Some very ordinary 3 or 4 bed homes, we would call bungalows, fetch sums like $4.5million. Larger homes near the harbour......$10-20m

The Strength of GILTS markets here and in other parts of Euro land is surprising though. Even Greece got theirs away in the last few days. I think there is aperiod of calm going on and stock markets are cheering slightly in the US over better corporate results. These are largely based on the old gane of comparing to the Aramageddon moment and not really all good results. Also, after a severe clearout of staff and destocking over, these things often happen. However corporate US is not very well, consumer confidence waning, their State Govts mostly bankrupt and QE running down. If the economy of the US was in good shape, you would say stocks are cheap. Just now they are dangerous. Look out for the financial sector results due later this week and we''ll see. American Express results may show how spending is really going. The debts accruing around the western world beggar belief. It remains to be seen if the ConLibs can actually reduce spending as much they wish. It will be very difficult once the cuts actually start coming into effect. That part has not happened yet. It'sstill all talk. Talk is the easy bit..........

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We are not the only housing bubble without correction RB! THERE IS AN EVEN BIGGER ONE in Australia and another in parts of Canada - eg Vancouver , now with the highest prices in the world on income multiples. Sydney has overtaken London on same basis for the first time I believe. Some very ordinary 3 or 4 bed homes, we would call bungalows, fetch sums like $4.5million. Larger homes near the harbour......$10-20m

The Strength of GILTS markets here and in other parts of Euro land is surprising though. Even Greece got theirs away in the last few days. I think there is aperiod of calm going on and stock markets are cheering slightly in the US over better corporate results. These are largely based on the old gane of comparing to the Aramageddon moment and not really all good results. Also, after a severe clearout of staff and destocking over, these things often happen. However corporate US is not very well, consumer confidence waning, their State Govts mostly bankrupt and QE running down. If the economy of the US was in good shape, you would say stocks are cheap. Just now they are dangerous. Look out for the financial sector results due later this week and we''ll see. American Express results may show how spending is really going. The debts accruing around the western world beggar belief. It remains to be seen if the ConLibs can actually reduce spending as much they wish. It will be very difficult once the cuts actually start coming into effect. That part has not happened yet. It'sstill all talk. Talk is the easy bit..........

About sums it up correctly IMO. DC/Ozzy look good to the world at the moment and appear to have it all under control, despite the revelation that the debt is 4 times previously estimated and job growth is down to more part-time is hardly a sign of real growth. Calm before the real storm begins.

IN the meantime the Bond market is still showing more money piling in as safety plays.

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I think he called it too early. Next year maybe. I really don't see the UK being that big a basket case. Housing market crash - yes. But spiralling interest rates to defend a collapsing pound and an over-spending government... nope.

oh you big party pooper.

Party_Pooper_Pants_300px.jpg

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I think the Tory led government is good news for gilts.

They have successfully given the impression that they are on top of the government spending juggernaut.

The deluded spender has been ejected from Downing Street.

I think we are looking good. Austere, but good.

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  • 140 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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