Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Why Pimco cut its bond holdings

Pimco bondsClick the chart for more about the fund and its performance By Catherine Tymkiw, markets editor


NEW YORK (CNNMoney) -- When news broke that Pimco's Total Return Fund (PTTRX) had slashed its U.S. Treasury holdings to zero, investors were left wondering why the world's biggest bond fund would bail out of the safe haven.

"Everything you buy and hold must have value," said Pimco CEO Mohamed El-Erian at a market outlook event hosted by Thomson Reuters Thursday. "In our estimation there was better value elsewhere."

In just two months time, Pimco cut its exposure to U.S. government debt to zero. "When we looked at what was available, there were Treasury-like instruments that had better value," said El-Erian.

Another reason behind Pimco's decision to remain on the sidelines of the U.S. Treasury market is the uncertainty about where prices will head once the Federal Reserve winds down QE2 in June.

The Fed has been the biggest buyer under the program, aimed at driving down interest rates to spur spending. El-Erian said it's unclear who will fill that role.

"There will be lots of buyers at cheaper prices," he said. But without a clear buyer to step into the Fed's shoes, El-Erian said it was better to stay away. "When Treasuries reprice, we'll look at that," he said.

When asked what would be a fair price for, say, the 10-year note, El-Erian would only say, "lower than it is now." The price on the 10-year is sitting at around $101 and change, with a yield of 3.4%.

Earlier this month, Pimco founder Bill Gross said a 4% yield is generally within the realm of what the company is targeting.

As for the likelihood of a QE3? Doubtful, says El-Erian. "QE1 was totally justified. It was about normalizing markets," he said, adding that the Fed may have thought twice about QE2 if they had known there would be a "fiscal agreement on another stimulus" in the form of payroll and other tax breaks.  To top of page

Overnight Avg Rate Latest Change Last Week
30 yr fixed3.85%3.80%
15 yr fixed3.04%3.02%
5/1 ARM3.20%3.14%
30 yr refi3.83%3.78%
15 yr refi3.02%3.03%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 21,454.61 143.95 0.68%
Nasdaq 6,234.41 87.79 1.43%
S&P 500 2,440.69 21.31 0.88%
Treasuries 2.22 0.02 1.05%
Data as of 10:32pm ET
Company Price Change % Change
Bank of America Corp... 23.88 0.61 2.62%
Advanced Micro Devic... 13.23 -0.17 -1.27%
Ford Motor Co 11.09 0.01 0.09%
General Electric Co 27.08 -0.13 -0.48%
Micron Technology In... 32.24 0.58 1.83%
Data as of 4:15pm ET

Sections

A federal prosecutor called former pharmaceutical CEO Martin Shkreli a fraudster in the opening statements of his criminal fraud trial, but his defense attorney said his client might be strange, but he's not guilty. More

The Federal Reserve on Wednesday will disclose if 34 of the country's banks will be cleared to buy back stock or pay dividends to shareholders. More

It's tough being a first-time buyer in today's housing market. Don't make it even harder (or more expensive) for yourself by making these common mistakes. More