BIG Slide Begins: World's Biggest Bond Fund leads the way
Attention all bond investors: In May, Bill Gross, manager of the world's biggest bond fund, cut holdings of U.S. Treasury securities and agency debt to their lowest levels in four years as the U.S. Federal Reserve raised interest rates at a 16th consecutive policy meeting.What does this mean? First, it means that prospects are looking grim in the real estate market. Second, PIMCO decided that it isn't prudent to hold on to Treasury debt now at such low rates when alternatively they can (1) bleed people who need cash, and in the meantime (2) wait until Treasury yields are sky high before sticking it to the government, a.k.a. taxpayers.
Gross, chief investment officer at Pacific Investment Management Co. in Newport Beach, California, reduced his Total Return Fund's holdings of Treasury bonds and securities sold by government-chartered Fannie Mae and Freddie Mac for a seventh straight month. Holdings of U.S. debt dropped to 6 percent in May, the fund's lowest amount since April 2002, from 7 percent in April, according to Pimco's Web site.
Rising interest rates have pushed Gross to move his holdings away from Treasury holdings and other long-term government debt and into cash and its equivalents. He raised the fund's holdings of cash and securities with a maturity of less than one year for a sixth straight month to 34 percent in May from 32 percent in April.And no one wants to be left holding that worthless bag of debt. The mortgage-backed bond market is imploding.
He also cut holdings of mortgage-backed securities to 56 percent in May from 57 percent in April. Mortgage bonds pay interest from a pool of mortgages.
Life is going to get increasingly harder for average Americans who must either labor over every dollar they need to survive, or borrow it at interest.