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PIMCO's Move to Bump Up Its Government Bond Allocation Is Old News
Real Treasury interest rates remaining at zero or lower may be a bullish catalyst for precious metals.
Michael Sedacca    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

You may have heard or read that PIMCO increased its government bond allocation in its flagship PIMCO Total Return Fund (MUTF:PTTRX) to 50% from 41% in the month of May.

What's the takeaway from this?

I would not view this as a leading indicator. Prior to May, Bill Gross, PIMCO's co-founder and managing director, had been on TV touting the idea of a 2% neutral Fed Funds rate. His talking point was repeated in his May investment letter and the firm's secular outlook report on the same topic. The increased allocation was done prior to the commentaries in order to capture the market's renewed attention on the subject -- not to mention the fallout from former Federal Reserve Chair Ben Bernanke and his comments during his dinner circuit, when he also discussed a significantly lower neutral Fed Funds rate.

So, PIMCO has already taken this trade -- so to speak -- and I've seen evidence that it locked in gains through Eurodollar put structures last week, if not by outright selling some of these holdings (MBS and Treasuries).

More importantly, PIMCO sees the "New Neutral" -- the view that global economies will converge to modest trend growth rates -- as a bullish catalyst for gold and other precious metals. The real overnight rate will be at around zero in the future, and real Treasury interest rates may remain at zero or lower, which will reduce, or even remove, the opportunity cost of holding non-yielding assets like gold or silver. Check out the latest comments (#2 and #3) from deputy CIO Mihir Worah on the subject.

Twitter: @MichaelSedacca



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No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

More From Michael Sedacca
PIMCO's Move to Bump Up Its Government Bond Allocation Is Old News
Real Treasury interest rates remaining at zero or lower may be a bullish catalyst for precious metals.
Michael Sedacca    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

You may have heard or read that PIMCO increased its government bond allocation in its flagship PIMCO Total Return Fund (MUTF:PTTRX) to 50% from 41% in the month of May.

What's the takeaway from this?

I would not view this as a leading indicator. Prior to May, Bill Gross, PIMCO's co-founder and managing director, had been on TV touting the idea of a 2% neutral Fed Funds rate. His talking point was repeated in his May investment letter and the firm's secular outlook report on the same topic. The increased allocation was done prior to the commentaries in order to capture the market's renewed attention on the subject -- not to mention the fallout from former Federal Reserve Chair Ben Bernanke and his comments during his dinner circuit, when he also discussed a significantly lower neutral Fed Funds rate.

So, PIMCO has already taken this trade -- so to speak -- and I've seen evidence that it locked in gains through Eurodollar put structures last week, if not by outright selling some of these holdings (MBS and Treasuries).

More importantly, PIMCO sees the "New Neutral" -- the view that global economies will converge to modest trend growth rates -- as a bullish catalyst for gold and other precious metals. The real overnight rate will be at around zero in the future, and real Treasury interest rates may remain at zero or lower, which will reduce, or even remove, the opportunity cost of holding non-yielding assets like gold or silver. Check out the latest comments (#2 and #3) from deputy CIO Mihir Worah on the subject.

Twitter: @MichaelSedacca



< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

More From Michael Sedacca
PIMCO's Move to Bump Up Its Government Bond Allocation Is Old News
Real Treasury interest rates remaining at zero or lower may be a bullish catalyst for precious metals.
Michael Sedacca    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

You may have heard or read that PIMCO increased its government bond allocation in its flagship PIMCO Total Return Fund (MUTF:PTTRX) to 50% from 41% in the month of May.

What's the takeaway from this?

I would not view this as a leading indicator. Prior to May, Bill Gross, PIMCO's co-founder and managing director, had been on TV touting the idea of a 2% neutral Fed Funds rate. His talking point was repeated in his May investment letter and the firm's secular outlook report on the same topic. The increased allocation was done prior to the commentaries in order to capture the market's renewed attention on the subject -- not to mention the fallout from former Federal Reserve Chair Ben Bernanke and his comments during his dinner circuit, when he also discussed a significantly lower neutral Fed Funds rate.

So, PIMCO has already taken this trade -- so to speak -- and I've seen evidence that it locked in gains through Eurodollar put structures last week, if not by outright selling some of these holdings (MBS and Treasuries).

More importantly, PIMCO sees the "New Neutral" -- the view that global economies will converge to modest trend growth rates -- as a bullish catalyst for gold and other precious metals. The real overnight rate will be at around zero in the future, and real Treasury interest rates may remain at zero or lower, which will reduce, or even remove, the opportunity cost of holding non-yielding assets like gold or silver. Check out the latest comments (#2 and #3) from deputy CIO Mihir Worah on the subject.

Twitter: @MichaelSedacca



< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

More From Michael Sedacca
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