Here’s a speculative bet that will be worth watching. Bill Gross, head of PIMCO, the most revered bond biz in the U.S., tripled his company’s investment in mortgage debt. His $130 billion Total Return Fund, the world’s largest bond fund, is now composed 61% of mortgage-backed securities.
Gross told the Financial Times that his decision to expose such a huge portion of the fund was not based on his faith in U.S. housing, but rather the U.S. government’s unspoken guarantee of Fannie Mae and Freddie Mac.
In other words, the world’s biggest collection of bonds is riding on the hope that if Fannie and Freddie bite the dust, the government could, and would, bail ‘em out. It’s probably a safe bet to say they’d try. But at what cost to you or your currency?
For now, Gross has played the credit crisis masterfully. The Total Return Fund is up nearly 4% this year, twice the returns of typical bond funds, and TRF’s best start in eight years.
Gross told the Financial Times that his decision to expose such a huge portion of the fund was not based on his faith in U.S. housing, but rather the U.S. government’s unspoken guarantee of Fannie Mae and Freddie Mac.
In other words, the world’s biggest collection of bonds is riding on the hope that if Fannie and Freddie bite the dust, the government could, and would, bail ‘em out. It’s probably a safe bet to say they’d try. But at what cost to you or your currency?
For now, Gross has played the credit crisis masterfully. The Total Return Fund is up nearly 4% this year, twice the returns of typical bond funds, and TRF’s best start in eight years.
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