PIMCO Redemptions Drop Despite El-Erian Fiasco and Today’s Other Top Stories

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PIMCO has suffered a terrible start to the year, in the boardroom at least, with long time Co-Chief Executive, Mohamed El-Erian, announcing he was stepping down from the firm in early March.

The announcement was met with suspicion from much of the investment community. El-Erian was widely seen as heir apparent to 69 year old Gross who has been at the helm of the bond giant for over 40 years. And those suspicions were confirmed last week when the WSJ broke this story.

But despite turmoil in the boardroom, PIMCO funds appear to be performing quite well. SFGate reports that redemptions from Bill Gross’s PIMCO Total Return Fund slowed to a ten-month low in February, the first month after the resignation of El-Erian.

Investors pulled a net $1.6 billion from Pimco Total Return Fund in February, the least since May, according to a statement from Pacific Investment Management Co. Net redemptions have decreased this year from the fund, which lost its title as the world’s largest mutual fund in October.

This is good news for PIMCO, which is desperately trying to stem outflows after a woeful 2013 in which the firm’s flagship Total Return fund, suffered record net redemptions of $41.1 billion, according to data from Morningstar Inc.

So far this year, Gross’s fund has returned 1.9%, trailing 59% of peers. Over the past five years, the fund has returned an impressive 7.4%, beating 60% of rivals, according to data compiled by Bloomberg. In 2013, PIMCO Total Return fell 1.9%, behind 65% of peers, while beating the Barclays U.S. Aggregate Index.

In an effort to reassure clients following El-Erian’s departure Gross initiated a boardroom reshuffle, naming Doug Hodge, formerly PIMCO’s chief operating officer, as its CEO. Gross said the new organizational structure is a “significant improvement” and the investment officers will have more operational flexibility and discretion.

So far atleast those changes appear to be working. The ship has been steadied, and is sailing in calmer waters. But with the threat of rising rates hanging over the bond market, there are rough seas ahead, it remains to be seen how PIMCO’s new management structure navigates them.


Todays Other Top Stories

Municipal Bonds

Reuters: – Puerto Rico debt woes choke bond supply for some municipal funds. – The downgrade of Puerto Rico’s debt to junk status earlier this month has resulted in a rough ride for some municipal bond funds that focus on the debt of specific states.

BondBuyer: – February muni volume lowest since 2000. – Driven by a continued steep decline in refundings, long-term municipal bond issuance remained paltry, with the lowest February volume since 2000.

Income Investing: – If Oscar nominees were asset classes, the winner would be… – As we head into the weekend of the 2014 Academy Awards, Brian Nick, senior strategist at UBS, took the time to match up various Oscar-nominated movies with what would be their corresponding asset classes, loosely based on plot but mostly on their respective chances to prevail this year.

WSJ: – Creditor objects to Stockton, Calif., bankruptcy plan. – Municipal-bond investors who lent $35 million to Stockton, Calif., for city improvements are protesting its Chapter 9 exit plan. They contend that, if approved by a bankruptcy judge, the plan would unfairly pay them less than a penny on the dollar.

WSJ: – Municipal bonds regain popularity. – Municipal bonds are back in favor after their drubbing in 2013. Investors are being lured back by relatively high yields, especially after tax breaks on much of the debt issued by states, cities and local-government entities are taken into account.

Bloomberg: – Texas pitches market-losing debt in biggest sale. – The Texas Transportation Commission is offering $1.2 billion in debt, this week’s biggest deal, as similar securities trail the broader $3.7 trillion market for the sixth-straight year.

InvestorPlace: – Keep the IRS off your income: 3 plays on municipal bonds. – Investors in municipal bonds took it on the chin last year after the Fed’s “tapering” policy sparked fears of rising interest rates, while Detroit’s bankruptcy filing redefined the term “default risk.” Still, a solid case remains for municipal bonds — especially if you’re a fixed-income investor who wants to protect your nest egg from the tax man.



LearnBonds: – One lesson for bond bears: Bond spreads matter. – Perhaps you’ve heard the phrase, “There’s always a bull market somewhere.”  That phrase doesn’t just refer to individual stocks.  It can refer to individual bonds as well.

MarketWatch: – 5 things investors need to know about Ukraine crisis. – Crisis in Ukraine. A Russian invasion—again. Panicky headlines, scary video clips, rumors on the Internet. So what do investors need to know? What moves should we make in response to protect ourselves, and maybe even profit?

MarketWatch: – Falling off the bond ladder. – There is an old saying that most problems have a simple solution and it’s usually wrong.


Bond Trading

Bloomberg: – Yellen tames bond traders with volatility to pre-taper level. – When it comes to monetary policy, Federal Reserve Chair Janet Yellen is doing all she can to ensure there’s little difference between herself and Ben S. Bernanke. The bond market is taking notice.


Treasury Bonds

Donald van Deventer: – Treasury forecast: A sharp drop this week and a 7% scenario for Treasuries In 2017. – The latest implied forward rate forecast from Kamakura Corporation shows projected 10 year U.S. Treasury yields down 0.11% to 0.18% from last week while fixed rate mortgage yields are 0.01% to 0.04% higher.

FT: – U.S. inflation expectations boost Tips demand. – U.S. inflation expectations for the next five years rose to their highest level in seven months on Monday, as investors believe the inflation-linked bond market is underplaying a prospective pick up in consumer price pressures.

ETF.com: – Daily ETF Watch: PIMCO axes Treasury ETF. – Pimco is shuttering its Pimco Broad U.S. Treasury Fund (TRSY | C-63), a laddered strategy of holding three of the most recently issued 2-, 3-, 5-, 7-, 10- and 30-year U.S. Treasury notes and bonds, on March 14, according to a regulatory filing.

MoneyBeat: – Fed’s bond buys aren’t as unconventional as they appear. – The current round of bond purchases is aimed at lowering long-term interest rates in hopes of boosting asset prices and spurring more spending, investment and hiring.


Corporate Bonds

FT: – SEC probes Goldman and Citi bond allocations. – The Securities and Exchange Commission is investigating the way investors are given allocations of bonds in sought-after offerings, such as the Verizon Communications issue, according to people familiar with the matter.


High Yield

Bonddad Blog: – Junk bonds continue to rally; Junk spreads continue to narrow. – This chart of the junk bond ETF shows that investors are still reaching for yield. It shows that investors are still very bullish.

Forbes: – High yield bond fund cash inflow dwindles To $559M. – Retail-cash inflows to high-yield funds totaled $559 million in the week ended Feb. 26, according to Lipper. This is the third consecutive inflow, but the lowest over that span following an $804 million inflow last week and $1.45 billion in the week prior.

Income Investing: – Junk bond 2014 returns through February: 2.76%. – Junk bonds continue to defy gravity and mathematics, soaring through the first two months of 2014 with a 2.76% return, even though the market entered the year yielding just 5.6%. That average yield is down to 5.2% now, and the average junk-bond price is up to 104.9 cents on the dollar, with an average spread over Treasuries of 3.81 percentage points, a fresh post-crisis low.


Emerging Markets

Forbes: – Emerging market banking crises are next. – The good times were very good for emerging markets prior to mid-last year. Capital inflows led to currency appreciation which provided the liquidity for domestic investment and consumption booms. But the beginning of QE means the good times have come to an end and it’s the banks that will suffer.


Investment Strategy

The Street: – Should you fear higher interest rates? – How should you allocate your investments when interest rates appear to be heading higher?

Bank Investment Consultant: – A guide to the changing bond market. – Mutual funds. Separately managed accounts. Laddered portfolios. These are the vehicles of choice for advisors looking to put their clients into bonds.


Catastrophe Bonds

Artemis: – Gator Re catastrophe bond grows to $200m, price guidance down. – First time catastrophe bond sponsor American Strategic Insurance Group is set to enjoy the attractive cat bond issuance and rate environment as its Gator Re Ltd. cat bond upsizes to $200m while price guidance was lowered to below the initial range.


Bond Funds

Seattle Times: – Bond mutual funds hot with investors again. – Bond mutual funds attracted $2.9 billion in the week ended Feb. 19, the Investment Company Institute said, the highest contribution to bond funds since last May.

Kiplinger: – 4 Bond portfolios for more income, less risk. – To help you weather this uncertain market, we’ve assembled seven bond-fund portfolios designed to pay more than you can get from the bank while keeping duration (a measure of interest-rate risk) in check.

Dragonfly Capital: – Stocks and bonds rising together, its OK. – Conventional wisdom states that rising bond prices are bad for stock prices. Rising bond prices mean falling yields, which should be good for equities. If bonds return little or no yield then equities, despite being riskier, look more attractive. But rising bond prices also mean that money is being attracted to the bond market, and away from or out of equities. This latter piece is what makes up the conventional view.

FT Adviser: – Fixed income: Back to bond basics – March 2014. – Fixed income fell out of favour with some investors in 2013, with the asset class recording the first net retail outflows of £17m, according to IMA figures.




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Simon G

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