To get the Best of the Bond Market delivered to your email daily click here.
The Securities and Exchange Commission (SEC) is investigating whether bond fund manager PIMCO inflated the returns of its Total Return Exchange-Traded Fund run by founder Bill Gross.
PIMCO and its owner, Allianz, Europe’s biggest insurer, confirmed the probe after a report in the Wall Street Journal said the SEC investigation into the $3.6-billion exchange-traded fund has been going on for at least a year but has picked up pace in recent weeks.
To see a list of high yielding CDs go here.
The SEC’s probe is looking into how the ETF bought and then valued its investments in bonds and whether that led to inaccurate information about the fund’s actual performance being given to investors, the Journal said.
Gross, the chief investment officer of PIMCO, and other executives have been interviewed by the SEC as part of the probe, the report said.
“Pimco has been cooperating with the SEC in this non-public matter and we take our regulatory obligations and responsibilities to our clients very seriously,” a spokesman for PIMCO told Reuters.
“We believe our pricing procedures are entirely appropriate and in keeping with industry best-practices.”
The news of the probe comes on the back of a rough year for Gross with PIMCO’s flagship Total Return Fund, the world’s largest bond fund, seeing outflows for 16 straight months through August. With the fund declining 1.9 percent in 2013, its worst performance in nearly two decades.
Analysts have said cash outflows began last year due to weak returns and accelerated following the shock resignation of the funds longtime Co-Chief Investment Officer Mohamed El-Erian.
Todays Other Top Stories
Learn Bonds: – The wisdom of the bond ladder. – For the average bond investor, getting into a game of predicting where interest rates will head over the near-term is likely a losing proposition. At the beginning of 2014 if you had followed the popular consensus and avoided bonds with the 10-Year Treasury at 3%, or worse yet shorted bonds, it would be you on short end of the call. In 2013, if you made a big bet on long bonds prior to the now renowned “taper tantrum,” well, let’s just say it was not the best time to buying long-term bonds.
WSJ: – Stringer calls for green bonds in New York. – Comptroller Scott Stringer wants New York to become the nation’s first major city to issue municipal bonds dedicated to financing environmentally friendly projects, as a wave of infrastructure and post-Sandy construction begins.
Bond Buyer: – Green bonds’ secondary market performance is mixed. – While the issuance of green municipal bonds is creating buzz following the weekend’s People’s Climate Change marches, the category to date has shown mixed performance in the secondary market.
Income Investing: – Tobacco bonds may be hazardous to your portfolio. – For decades, doctors have warned Americans about the dangers of tobacco. Now, analysts are cautioning investors about tobacco bonds.
Bloomberg: – Tobacco bonds seen cheap as default forecast raised: Muni Credit. – Managers of two of the largest high-yield municipal funds see a buying opportunity in tobacco securities even as more of the bonds are projected to default.
Bloomberg: – California $2.4 billion sale offers 2.48% on 10-year debt. – California sold debt at yields ranging from 0.1 percent to 3.84 percent as it completed a $2.37 billion general-obligation offering, including the first green bonds for financing environmental projects, Treasurer Bill Lockyer’s office said.
Financial Post: – Managers warn against bond market complacency. – Christine Horoyski says the biggest risk facing the bond market these days is investor complacency surrounding the U.S. Federal Reserve’s tightening policies.
CNBC: – About those forecasts for bonds to drop… – Calls for the bond market to drop this year have largely come to naught, and some analysts are now looking for gains.
Yahoo Finance: – ‘Everybody’ hates Treasuries…and then there’s Gary Shilling. – U.S. Treasuries continue to benefit from the combination of rising geopolitical tension and fears of slowing global growth. At 2.54%, the yield on the 10-year Treasury hit their lowest level since Sept. 11 on Tuesday morning.
BizNews: – Investors in corporate bond funds are vulnerable: warnings. – Corporate bond funds are in the spotlight again. There have been alarm bells ringing in global bond markets for some time. More recent news out of the U.S. is that liquidity has all but dried up for corporate issues. If you have exposure to international corporate bonds, through a unit trust or exchange traded fund, be warned: you are vulnerable.
Anthony Fernandez: – The corporate bond bubble is about to burst. – Corporate cash holdings are at record highs. On this fact there is no disagreement. What has not been mentioned is something that is far more important.
High Yield Bonds
Bloomberg: – Fed said to warn banks on capital charges on leveraged loans. – Federal Reserve officials are warning banks that rising levels of high-risk, high-yield loans on their balance sheets may require more capital held against them, according to a person familiar with the conversations.
S&P Capital Markets: – Toys ‘R’ Us high yield bonds jump, CDS tightens after co. discloses refinancing. – Bonds backing Toys ‘R’ Us jumped and the retailer’s credit protection costs tightened on last night’s news of a refinancing plan. The 7.375% secured notes due 2016 targeted in a bond-for-loan and loan-for-loan rollover rallied to a par context, from 93/94 prior, according to sources.
WSJ: – Junk-bond investors start to see warning signs. – (Subscription required) Some pare riskiest holdings as they gird for long-running rally to falter.
Bloomberg: – Hedge funds circling Venezuela as yields top 15%: Andes credit. – Hedge funds are stepping in to fill a vacuum in Venezuela’s bonds as deepening concern the nation will default triggers an investor exodus.
Funds Society: – Emerging market debt: Revisiting the trouble spots. – A review of the primary systemic, global risks for EM debt, along with the idiosyncratic, country-level events that have dominated the headlines.
Risk.net: – ILS demand fuels structural innovation. – In what is clearly a seller’s market, ILS issuers are finding they can dictate terms to their own advantage. The effect has been a burst of innovation including issuance in new currencies and the sale of bonds with unmodeled risks.
USA Today: – What do rising interest rates mean to you? – Sooner or later, the Federal Reserve will have to raise interest rates, and this will affect you and every other investor in the United States. For bond investors, particularly in open-ended mutual funds, rising interest rates are bad news because as interest rates rise, bond values decrease.
MarketWatch: – The ABCs of bond yields. – Retirees who want fixed income as part of their asset allocation have several alternatives to choose from. You can use bond funds, buy individual issues or a combination of the two.
Investorplace: – Don’t ‘set it and forget it’ – Tinker with your portfolios. – Here are some ways to make sure you’re not limiting your investing potential.
The Globe and Mail: – Liquidity crunch in bonds hits ETFs, raises risk. – Index fund managers are finding it hard to secure the bonds they need at the prices they want, forcing them to make trade-offs that can hurt investors and leave managers vulnerable in a market downturn.
FT: – PIMCO, WisdomTree join Schwab’s ETF platform. – (Subscription required) Pimco and WisdomTree are among the seven new shops that have signed on to a vastly expanded Schwab ETF OneSource platform.
ETF.com: – What the SEC will find at Pimco’s BOND. – The Wall St. Journal headline this morning certainly wakes you up: Pimco ETF Draws Probe by SEC. So what’s really going on here, and has Pimco done anything wrong? And should anyone be surprised?
Anyways, there’s thousands of bonds and pricing services aren’t perfect. Seems like pretty common practice & no wrongdoing by PIMCO
— David Schawel (@DavidSchawel) September 24, 2014
Q end vs 2015 tightening is causing the local 2-Year curve to steepen to > 4bps per month.
— Ed Bradford (@Fullcarry) September 24, 2014
To fully fund debt service, pension contrib and OPEB, #NewJersey would have to see 20% increase in revenues for FY2015; More in our weekly.
— Muni Market Advisors (@Muni_Mkt_Advis) September 24, 2014