Largest bond finance drops all government debt and then some

The largest bond finance on the planet is betting the Congress doesn’t have what it takes to solve the nation’s deficit problem. The Pimco Total Return Fund has gone into negative territory on U.S. Treasuries. This is also known as taking a short position on the debt piling up in the United States government.

Pimco does influence the United States Treasuries

Pimco is placing a bet the debt will make rates of interest soar and possibly hurt the Nation’s triple-A bond rating. To get to a short position on Treasury bonds, Pimco sold borrowed securities on a bet it can buy them back later at a lower price. Bill Gross, head of Pimco, has been warning people of the United States government debt. In February Gross caused a stir by selling all of Pimco’s Treasury holdings. In March he made $7 billion bet against the securities.

The portion of Pimco’s $236 billion Total Return Fund held in U.S. Treasuries and other long-term government debt dropped from zero in February to negative 3 percent in March. The fund’s money equivalents rose to 31 percent of the fund’s assets, a $73 billion bet that the good times are about to end in the markets.

Pimco’s possession was brief

Gross has no faith that Congress will be able to solve the deficit problem. In an April Pimco newsletter, he said the United States government was “out-Greeking the Greeks.” Greece’s massive government debt forced its leaders to ask for a bailout from the European Union to prevent a global chain response of financial failure. In fact, current unfunded government spending on entitlements combines to equal five times United States GDP, a debt burden much heavier than what sent Greece into crisis.

The market and how Pimco will use it

Gross is assuming a sort position on U.S. Treasuries and hoping that the market falls in his favor. John Carney at CNBC warns investors to regard Gross’s machinations with caution. Wall Street has been unreliable for a while now, and something that seems right, might in fact be “dangerously wrong.”

Information from

Associated Press

finance.yahoo.com/news/PIMCO-goes-short-US-rb-3790514655.html?x=0

Fortune

finance.fortune.cnn.com/2011/04/10/pimcos-gross-betting-against-u-s-debt/

Christian Science Monitor

csmonitor.com/Business/Latest-News-Wires/2011/0412/Bond-fund-and-many-others-bearish-on-US-debt

Reuters

reuters.com/article/2011/04/11/us-pimco-bonds-short-idUSTRE73A2IR20110411