Pimco in Fight to Stem Outflows and Today’s Other Top Stories

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Pimco executives hit the phones Monday in an effort to persuade clients to stick with the firm, following the sudden departure of Bill Gross.

The news comes as as Wall Street traders began to place bets against its holdings (subscription), seeking to exploit the sudden departure of Gross who co-founded the fund 43 years ago.

Pimco’s executive team, among them Chief Executive Douglas Hodge, hosted a string of calls with financial advisers at Wall Street firms, including Merrill Lynch and Morgan Stanley, to explain why the firm will thrive despite Mr. Gross’s exit, according to people familiar with the matter.

“We’re energized, we’re prepared and we’re strong,” Mr. Hodge said to a group of Morgan Stanley financial advisers Monday afternoon on a teleconference, according to a person familiar with the matter.

Pimco has been forced to act in an effort to stem outflows with the Wall Street Journal reporting that Pimco funds suffered roughly $10 billion of withdrawals (subscription) following Mr. Gross’s departure last Friday.

Other large asset-management firms were quick to get on the offensive, sending a barrage of emails to financial advisers touting their own products, citing the turmoil at Pimco as among the reasons investors should move their money, according to people who have seen the appeals.

On Friday and Monday, some asset managers including J.P. Morgan Chase & Co. and TCW Group Inc. said they began seeing new investments from Pimco clients, including large institutions.

Consultants to pension funds and advisers asked Pimco’s rivals if they could handle large amounts of money taken out of Pimco, according to some of those involved in the talks.

There are also reports that some hedge funds are attempting to profit from Pimco’s woes by shorting, or wagering against, some of the largest holdings in Pimco’s Total Return fund, the $222 billion mutual bond fund that was run by Mr. Gross. The traders could profit if clients continue to withdraw money from Total Return or from other Pimco funds, forcing the firm to sell these investments to raise cash to hand back to the clients.

These same hedge funds could also score gains if the new managers of the Total Return fund have a view that is different from Mr. Gross’s and decide to change the fund’s holdings by selling some of Mr. Gross’s favorite assets.


Todays Other Top Stories

Learn Bonds

Learn Bonds: – Making sense of Pimco, Gross, China and recent market news. – The Wall Street Journal reports that $10 billion left Pimco last Friday. If this was because investors decided that different strategies were better suited to their goals, objectives and risk tolerances that is fine. However, if investors moved capital away from Pimco because Bill Gross is no longer there, they may have acted hastily.


Municipal Bonds

Bloomberg: – California water debt seen safe from drought’s grip: Muni Credit. – While California’s water reserves are dwindling amid an intensifying drought, there’s no dry spell when it comes to buyers of debt issued by the agency running the water system supplying 25 million people.

MMA: – September municipal bond market review. – The poor start to September is fully in the rear‐view mirror as tax‐exempts improved every single day last week. This week’s issuance amount drops to the low summer average providing a strong back‐drop.

Reuters: – U.S. municipal bond sales up 13.7 pct in September year/year. – U.S. municipal bond sales in September totaled $21.47 billion, a 13.7 percent increase from a year ago, but 5.3 percent lower than in August, according to preliminary Thomson Reuters data on Tuesday.


Bond Market

Income Investing: – Pimco redemptions threaten high yield, EM bonds – Janney. – Bill Gross’s abrupt departure from Pimco last week was a big enough deal in bond-land that it actually got blamed for dragging Treasury bond prices lower on Friday, in addition to kicking off outflows from Pimco. While Treasuries took a hit last week, some less-liquid corners of the bond market could get hurt in the days and weeks ahead because of Gross’s jump to Janus, according to Janney Montgomery Scott‘s chief fixed-income strategist, Guy LeBas.

FT: – Bond investors debate the Gross effect. (Subscription) For years investors have attributed sudden swings in the prices of bonds to a certain “big West Coast player” wading into the market. Now the sheer size of Pimco, the world’s biggest bond fund manager, is casting deeper ripples over a fixed-income market whose infrastructure has experienced a pronounced shift in the wake of the financial crisis.

Businessweek: – Junk bonds rebound as BofA to BlackRock see opportunity. – The junk-bond market, ruffled by the abrupt departure of bond king Bill Gross from the firm he founded, is rallying by the most in almost two months as Bank of America Corp. urges investors to buy.


Treasury Bonds

WSJ: – U.S. Government bonds pull back. – Treasury bonds pulled back Tuesday as some riskier assets stabilized from a selloff. Investors had sold U.S. and European stocks on Monday and piled into ultrasafe U.S. government bonds on political disturbance in Hong Kong.

WSJ: – Stubbornly Low bond yields and the man who saw them coming: Steven Major the man who saw it coming. – Many bond strategists and investors began this year anticipating last year’s sell-off would continue in 2014. But bond prices defied market expectations, rising amid a harsh winter that dented the U.S. economy, a weakening outlook for eurozone growth and violent flare-ups in the Middle East and Ukraine.


Investment Grade Bonds

MarketWatch: – Corporate debt, derivatives feel heat from Pimco outflows. – With billions of dollars flying out the door at Pimco following “bond king” Bill Gross’s shocking exit, it’s no surprise to see some turmoil in financial markets. So far, the ripples have been contained, but they haven’t left all instruments unscathed.

Market Realist: – 4 ways to increase your corporate bond exposure. – Record low U.S. Treasury rates continue to push investors to find yield elsewhere, and it seems that corporations are rushing to meet the demand. Matt Tucker explains.

Morningstar: – Credit Market Outlook: Corporate bonds in for a struggle. – With interest rates poised to rise further and credit spreads near their tightest levels since the end of the 2008–09 credit crisis, we expect rising rates to largely offset the yield that investment-grade corporate bonds currently offer.

Bloomberg: – Sovereign bonds beat corporates this quarter by most in 3 years. – Sovereign bonds around the world beat corporate debt this quarter by the most in three years as consumer-price gains slowed in the U.S. and disinflation threatened Europe.


High Yield Bonds

Forbes: – US high yield bond volume grows to $9.7B as Burger King prices. – U.S. high yield bond volume increased to $9.7 billion this week from $7.1 billion last week as 16 issuers priced deals in what was a tepid market. With last week’s activity, year-to-date issuance stands at $247 billion, compared to roughly $241 billion at this time in 2013, according to S&P Capital IQ/LCD.


Emerging Markets

Investopedia: – Emerging market bond ETFs: Look under the hood. – With Treasury yields at historic lows — investors seeking to diversity their government bond holdings have turned to emerging markets, which historically have offered higher rates. Exchange-traded funds have often been an efficient way to access such investments, and their relatively low expense ratios and liquidity make them more palatable for those who want an easy way in and out.

Bloomberg: – Bill Gross exit looms over Mexico’s slumping bond market. – Mexican bonds are posting losses for the first quarter in more than a year as mounting concern the U.S. Federal Reserve will boost interest rates erodes demand for emerging-market assets.


Catastrophe Bonds

Royal Gazette: – Golden State Re II deal shows cat bonds getting cheaper. Catastrophe bonds are becoming a progressively cheaper form of reinsurance as the dynamics of the insurance-linked securities (ILS) sector change.


Investment Strategy

Focus on Funds: – BlackRock: Four ETFs to ride the corporate debt wave. – Bond ETFs have been growing in popularity as a simple way to own debt, and for those not scared off by the Securities and Exchange Commission’s probe of the Pimco Total Return ETF (BOND), BlackRock’s Matthew Tucker has some advice for investors.

US Investor: – What can Warren Buffett teach you about risk? – It took me years to understand the true meaning of risk. It comes from Buffett’s definition which is – “Risk comes from not knowing what you are doing”. The academic definition of risk as beta or standard deviation is woefully inadequate in helping us understand risk. Let me apply Buffett’s definition to many of the asset classes.

Zacks: – 5 Strong buy Government bond mutual funds to outperform. – We share with you 5 top rated government bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future.

BlackRock: – Unconstrained Investing: What it is…And what it isn’t.  – “Unconstrained investing” is a term that is bandied about frequently—and is an investment approach that can often be misunderstood. Rick Rieder explains what exactly this approach is (and what it isn’t) and discusses how it works in practice.

Investorplace: – What to buy, what to sell to brace yourself for a correction. – Here’s how to fortify your portfolio in the face on an uncertain market.


Bond Funds

Income Investing: – Morningstar cuts Pimco flagship fund rating to bronze from gold. – Morningstar late Monday night cut its analyst rating for the Pimco Total Return Fund (PTTAX) to bronze from gold. The move comes after the fund research company had put Pimco’s flagship fund under review following Friday’s surprise departure by longtime Pimco bond maven Bill Gross, who defected to Janus Capital (JNS), with billions of dollars expected to follow Gross out the door.

WSJ: – Pimco is in a race to keep investors after Bill Gross exits. (Subscription) Executives at Pacific Investment Management Co. hit the phones Monday in a campaign to persuade clients to stick with the firm, even as Wall Street traders placed bets against its holdings, seeking to exploit the sudden departure of co-founder Bill Gross.

ETF Trends: – PIMCO ETF lighter by almost $545M after Gross departure. – The PIMCO Total Return ETF (NYSEArca:BOND), the actively managed ETF formerly managed by Bill Gross, has lost almost $545 million in the two trading days since Gross resigned from PIMCO, the firm the bond manager he founded.

Citywire Global: – Lipper on Gross: bond veteran’s Janus switch defies historical analysis. – The huge amount of press covering Bill Gross’s changes of investment house was a wonderful occasion of misdirection.

Financial Post: – ‘The mudslinging continues’: Bond ETF liquidity crunch not looming, proponents say. – Exchange-traded funds have dealt with their fair share of criticism over the years. That’s what having so much success tends to get you.


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