PIMCO Takes An Active Short On US Debt
(eToro Blog) Earlier this year, Bill Gross, the co-chief investment officer and founder of Pimco, one of the world's largest bond funds, reported that they were getting out of the U.S. Treasuries market. He voiced concern that, not only were U.S. instruments over-valued, but that the government's fiscal situation would worsen. It appears that Bill Gross is now even more bearish on U.S. debt, as it was recently reported that Pimco's Total Return Fund was increasing its short bet to 4% from 3%.
Yesterday, S&P reported that they were downgrading the long-term outlook on U.S. debt from stable to negative.
S&P also warned that there's a 1 in 3 chance that the U.S. will have their credit rating downgraded to AA from the current AAA within the next two years. To that end, they're giving the U.S. government until 2013 to put its fiscal house in order.
A recently televised media report with Mohamed El-Erian, Pimco's chief executive officer, says the likelihood of a downgrade is even higher, with Pimco's analysts giving it a 1 in 2 chance. According to him, the U.S. government must move quickly to get a consensus on medium term fiscal and budget reform. Failure to do so will, of course, be bad for the United States, but he worries that the cascading global repercussions could be far worse. He notes that time is of the essence, because the U.S. government hasn't even accomplished the first step toward reform, and that's the formulation of a credible action plan.
Investor concern over weakness in the U.S. Dollar today is being usurped by growing Eurozone worries which have pushed the common currency lower. On the eToro trading floor, among traders of EUR/USD, recently lower at 1.4226, sentiment is bullish in favor of buying by a ratio of 7 buyers to 2 sellers. The Pound Sterling is currently lower as well trading at 1.6376, hit by lower growth expectations; among traders of GBP/USD, selling sentiment reigns by a 7 to 3 ratio.
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