[eXpat]

P.M. Kitco Metals Roundup: Comex Gold Ends Firmer; Traders Discuss PIMCO's Dumping of U.S. Bonds

Comex gold futures prices ended firmer and near mid-range Wednesday. Precious metals traders were digesting and debating the reported move by the "bond king" PIMCO to dump its holdings of U.S. Treasury securities. Comex April gold last traded up $5.20 an ounce at $1,432.40. Spot gold last traded up $3.30 at $1,432.75.

Reports Wednesday said PIMCO is in the process of dumping all of its U.S. government debt. PIMCO had been the world's largest fund holding of U.S. government securities. PIMCO head Bill Gross is worried about the U.S. deficit and U.S. financial problems. PIMCO's move to dump U.S. debt can be viewed by gold market bulls as bullish, due to the implications of huge government deficits weakening the value of the U.S. dollar and the financial and economic standing of the U.S. in the world arena, in general. However, part of Gross's reason for dumping U.S. securities is that he believes the Federal Reserve will become less accommodative in monetary policy in the coming months, including the specter of rising interest rates, to fight inflationary price pressures. That could be viewed as bearish for the precious metals and bullish for the U.S. dollar.

Crude oil prices traded near steady Wednesday, and are above $104.00 a barrel. While there have been no fresh, major developments in the Middle East this week, traders are still very closely watching the price of crude oil as a gauge of the tensions in the Middle East. Some analysts believe a United Nations-established "no fly" zone over Libya could put serious downside price pressure on crude oil, which would also likely pressure the gold market. The stronger crude oil prices have been bullish for the precious metals due to the inflationary implications and the related geopolitical uncertainty that invites safe-haven demand.

The market place has this week again been reminded of the serious problems the European Union is facing with its smaller countries' sovereign debt. The EU debt situation will continue to limit selling interest in precious metals for at least the near term. This problem is not going to just fade away.

http://www.kitco.com/reports/KitcoNews20110309JW_pm.html

[eXpat]

And from another source
Pimco's Biggest Fund Dumps Treasury Bond Holdings

Pimco's Total Return Fund, the world's biggest bond fund, has dumped all U.S. government-related securities, including U.S. Treasurys and agency debt.

The move was not a surprise given Pimco chief Bill Gross's recent statements that Treasurys are over-valued.
"It just gives people that follow him the bias not to bullish on the Treasury market," said Jefferies Treasury Strategist John Spinello. "He thinks rates are going higher."

In fact, there was little reaction in the bond market when news of move leaked out Wednesday morning.

In January, Pacific Investment Management's $236.9 billion Total Return fund slashed its U.S. government-related debt holdings to the lowest level in at least two years and increased cash and debt holdings from other developed nations.

Government-related securities include Treasurys, Treasury Inflation-Protected Securities, agencies, interest rate swaps, Treasury futures and options, and corporate securities guaranteed by the U.S. Federal Deposit Insurance Corp.

The Total Return Fund's cash holdings had surged to $54.5 billion as of Feb. 28 from $11.9 billion at the end of January.

http://www.cnbc.com/id/41990901

[americandream]

Pump and dump.

[eXpat]

Quickly! Bar the door!

[Outcast_Searcher]

It's interesting. I listened to a very rational sounding investment manager today on "Strategy Session" on CNBC discuss bonds. I listened, because unlike most, he just calmly talked data points and wasn't trying to sell anything.

He pointed out that low grade corporate debt was and still is incredibly popular (PIMCO deals in LOTS of this, and has the nerve to insist its not junk bonds). He pointed out that since there have been VERY low default rates on this type of debt lately, that the market is pricing this like it's near 7% yield, with very little risk.

He says the relatively short duration of much of this low grade corporate debt (I notice many "high yield corporate" funds having 4 to 7 year average durations, which I admit, sounds a HELL of a lot better than 20 or 30 year bonds) is seducing many people to be taking on way more risk than they realize.

He insists that times will return when some of this debt goes south, and even half a percent defaults changes the rate of return considerably. Therefore, he actually prefers long treasury debt.

(Now, at these levels and with our economic situation, I basically hate ALL bonds at anything like current yields vs. risk.) I prefer stocks that pay decent to good dividends AND have a decent shot at moderate long term growth. Energy MLP's are a classic example. Even a high yield REIT like NLY that at least employs a barbell strategy to hedge somewhat against interest rate risk and pays you 15%-ish yield is compensating you FAR more for the risk than a stupid 30 year bond. (Not that I'd put a LOT of money into an NLY, of course).

Still, it's interesting to consider how differently different traders think, and I guess that makes a market. My guess is if treasury rates rise several points and congress finally does some REAL spending cutting, PIMCO might well start averaging back into treasuries.