Friday, November 25, 2011

Is Pimco about to lose big again?

We know that Bill Gross made a disastrous move shorting US Treasuries earlier this year. It put his fund at the bottom of all bond funds at least in terms of performance.

Bill Gross may be in for another, big loser. That’s because he has been saying for a long time that he is overweight German bonds (and underweight US) because German bonds were “the safest.”

Once again Gross displays a total lack of understanding when it comes to sovereign bonds and sovereign credit: Countries that don’t issue their own currency—like Germany—are INFINITELY more risky than countries that do—like the United States.

That’s because non-currency-issuing nations are credit sensitive. They NEED the money to pay their debt service, etc. Currency issuing nations pay in their own money of issue, so there is NEVER a solvency problem. (Someone please inform the rating agencies of that!)

From what I can determine, Pimco is heavily long German bonds and the German bond market is starting sell off hard now. Take a look at the yield spread between German 10-year bonds and US 10-year Treasuries. Germany yields are now surging above their German counterparts.

Don’t be surprised if you start hearing some more big loss stories coming out of Pimco!


googleheim said...

aufwiedersehen herr gross mit deine bundesbund hunden schlagen fragen smorgenborgen !

Wer ist die Putzen PUTZ jetzt ??

beowulf said...
This comment has been removed by the author.
beowulf said...

(The best of the Euro meltdown are the endless opportunities for linking to Hogan's Heroes).

Matt Franko said...


How do you say: "Who's going to buy them now?" in German?

Perhaps we should twitter that, because if you think about it, that question really does apply here in the Eurozone case...