PIMCO Makes Billions In Deal With Fed and Today’s Other Top Stories

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Reuters is out with a special report today, which connects the dots regarding PIMCO’s recent purchases of Mortgage Backed Securities. The short version is that PIMCO, Goldman Sachs and others created “special ops” teams to buy securities for the Fed.

At the request of the Fed, these teams were walled off from other workers, so that traders didn’t gain an advantage from what would undoubtedly be ‘inside information’. But how secure was that information?

The article shows how PIMCO traders made massive, outsized bets on what the Fed would buy, deals which subsequently netted the firm $10 billion in profit.

The news highlights the closeness between PIMCO and the Fed, which brought in former Fed Chairman Alan Greenspan as a consultant in 2007.

And the links don’t end there, Gross’s top lieutenant, Mohamed El-Erian, serves on the advisory committee for the New York Fed and PIMCO’s global strategic adviser, economist Richard Clarida, has known Fed Chairman Ben Bernanke for three decades and was reported to be in the running for a seat on the Fed’s board of governors in 2011.

PIMCO Total Return fund has struggled this year, largely due to the bond sell-off in May/June, which ironically enough, were caused by the Feds taper shenanigans. But PIMCO has done alright out of its deal with the Fed.

“You never go broke taking a profit,” Gross said. “We’ve sold … tens of billions of agency mortgages to the Fed, which is … basically what we intended to do.”

You can read the full article here.


Todays Other Top Stories


Municipal Bonds

InvestorPlace: – Hunting for yield? Target these 3 municipal bond funds. – Investors’ hunt for yield is a hunt that rarely loses momentum. It has led to lofty values in such asset classes as dividend-paying stocks, as well as various bonds and bond funds.

WSJ: – Muni bond issuers slow to report finances, study shows. – State and local governments are still slow to provide investors with reports on their fiscal health despite a push by municipal bond investors and regulators to get municipalities to improve their disclosures.

MuniNetGuide: – Does muni bond credit quality impact annual audit times? – Increased attention on local government fiscal stress and Chapter 9 bankruptcy filings has heightened concerns over municipal bond credit quality in wider circles than ever before.  But while the Securities and Exchange Commission (SEC) requires certain issuers of corporate bonds to file annual audit reports within 60 to 90 days after the close of their fiscal year, no such regulatory standards are currently in place for municipal borrowers.

Reuters: – Puerto Rico’s fat yields luring hedge funds, distressed buyers. – Puerto Rico’s municipal tax-free bonds yields are luring a new class of buyers: hedge funds and distressed debt investors betting the Caribbean island will keep servicing its massive debt.

Janney: – How should municipal investors treat policy uncertainty this time? – Although more policy uncertainty in the form of a potential government shutdown and another Debt Ceiling Debate is taking shape, we think potential fallout for municipals this time will be less far-reaching than in 2011.


Treasury Bonds

Learn Bonds: – How long will the Fed hold off tapering? – Our outlook is: The Fed will keep monetary policy extraordinarily accommodative for at least another year. The level of extraordinary policy accommodation will be adjusted, up or down, based on economic data.

CNBC: – Why October will be good for bonds. – Stocks weren’t the only surprise in September. The real shocker was the surprise performance in bonds. The 10-year is having its best month since April.

MarketWatch: – New link between stocks and bonds says equities are a buy. – As U.S. markets adjust for eventual monetary-policy normalization, the link between stocks and bonds is shifting. And this changing relationship is likely to stay in place throughout the Federal Reserve’s wind down of its bond-purchase program, also known as the taper, and hike in benchmark policy rates over the next few years. All of which underscores to some that equities are a better bet than bonds.

MoneyNews: – Peter Schiff: Treasurys are ‘junk bonds. – The nation’s finances are in such tatters that Treasurys are really “junk bonds,” says Peter Schiff, CEO of Euro Pacific Capital.

Chris Ciovacco: – Is the market tipping a bearish hand? – There could be more pain is ahead for bonds relative to stocks over the next several months/years.


Corporate Bonds

Donald Van Deventer: – Nokia corporation bonds: What kind of finnish ahead? – This note focuses on the risk and return on the bonds of Nokia Corporation, which once dominated the cell-phone world that Apple Inc. now rules.



ETF Trends: – Outperforming high-yield ETF sweeps in cash. – An actively managed fixed income ETF strategy that we have covered in this column on several occasions since the fund’s inception back in 2010 has experienced a strong September in terms of new asset growth.


Emerging Markets

MoneyBeat:  – Emerging-Market bond funds snap run of outflows. – Cash has started to flow back into emerging-market bond funds for the first time in over four months. That reflects resurging interest in the asset class after the U.S. Federal Reserve’s decision to provide continued stimulus to the economy.

FT Beyond Brics: – EM bonds back at last. – It’s taken 17 weeks, but emerging market bond funds are back in positive territory at last. Data provider EPFR, which monitors fund flows, shows that for the week ending 25 September, EM bond funds had an inflow of $570m.

CNBC: – Are Asian high-yield bonds a safe hiding place? – Asia’s high-yield corporate bond offerings may be less risky than conventional wisdom would suggest.

IndexUniverse: – WisdomTree Launches EM Consumer ETF. – WisdomTree today launched the WisdomTree Emerging Markets Consumer Growth Fund (EMCG) on the Nasdaq in what appears to be a riposte to the most successful fund in the emerging market space, the EGShares Emerging Markets Consumer ETF


Bond Funds

Business Insider: – Investors dump equities and pile back into bonds. – Over the past week, following the Federal Reserve’s surprise decision to refrain from tapering quantitative easing last Wednesday, bond funds snapped their 8-week streak of outflows as investors piled $4.5 billion into the asset class, the largest weekly inflow in five months.

Reuters: – Bond funds worldwide attract $4.5 bln in latest week. – Investors in funds worldwide poured $4.5 billion into bond funds in the latest week, marking the biggest inflows in five months, data from a Bank of America Merrill Lynch Global Research report showed Friday.

WSJ: – Bond funds enjoy bounce on taper delay. – Some marquee bond-fund managers who took a beating in the second quarter were vindicated when bets that the Federal Reserve would be cautious in paring its stimulus program recently paid off.

IndexUniverse: – AGG Turns 10; Bond ETF Future Looks Bright. – The iShares Core Total U.S. Bond Market ETF, the first bond ETF, and still one of the market’s most popular, turns 10 this month—a milestone that serves as an opportunity to look back at AGG’s history, as well as to take measure of how much room the bond-ETF market still has to grow.

Global Post: – U.S. based taxable bond funds attract $3.3 billion. – Investors committed $3.3 billion to U.S.-based taxable bond funds in the week ending Sept 25 in the wake of the Federal Reserve’s decision not to reduce its bond-buying program, data from Thomson Reuters Lipper service showed on Thursday.

ETF Trends: – Why floating-rate bond ETFs are booming. – A fund that we have profiled here before since its inception in mid-2011 continues to impress in terms of its ability to raise assets, FLOT (iShares Floating Rate Bond, Expense Ratio 0.20%), as it has taken in $2.9 billion year to date boosting its total AUM above $3.3 billion.


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