Recent market events have turned PIMCO bullish on Treasuries, thanks to a growing investor flight to safety. As a result, the famed bond manager is now snapping them up as bond exchange traded funds (ETFs) get a boost from bearish market sentiment.
The thinking among many investors and bond experts was that Treasury prices would fall and yields rise as the economy shapes up, interest rates rise and the government’s debt grows larger, report Min Zeng and Mark Gongloff for The Wall Street Journal. Many were caught by surprise, then, as Treasury bond prices surged and yields dropped to near-record lows after the debt crisis in Europe sparked a global flight to safety. [PIMCO 25+ Year Zero Coupon Treasury (ZROZ).]
On Wednesday, PIMCO has started to shift its stance on Treasurys, which is a rather significant move since it has the power to influence other players in the market. Since April, PIMCO has been increasing its holdings of U.S. government-related debt to its highest level in five months.
Treasurys dropped in the first quarter, with the 10-year note yield at nearly 4%, the highest since October 2008. On Wednesday, the government sold $21 billion 10-year notes at 3.242%. [$1 Billion ETF Provider Club Gets a New Member.]
Others are now similarly bullish on Treasuries:
- In April, Goldman Sachs Group (NYSE: GS) predicted that the 10-year yield will fall to 3.25% by year-end, and Morgan Stanley (NYSE: MS) expected it to shoot up to 5.5% but has changed its forecast to 4.5% in light of the effect Europe has on the market.
- Steve Rodosky, head of Treasury and derivatives trading at Newport Beach, Calif.-based PIMCO, believes the note may even dip below 3% should the global outlook worsen, but he expects yields to trade between 3% to 4% for the rest of the year.
- BlackRock expects yields to trade between 3% and 3.5%.
According to a recent Federal Reserve survey, the country’s economic growth has spread to every part of the country, with all 12 regions of the nation showing improved economic activity, according to iStockAnalyst. The pace of the growth is described as modest, which probably won’t translate to an increase in employment numbers. Bernanke has stated that the European debt crisis won’t negatively affect the American recovery. [May’s Top 5 ETFs.]
For more information on Treasuries, visit our Treasury bonds category.
- iShares Lehman 7-10 Yr Treasury Bond Fund (NYSEArca: IEF)
- PIMCO 25+ Year Zero Coupon U.S. Treasury (NYSEArca: ZROZ)
- SPDR Barclays Capital Long-Term Treasury (NYSEArca: TLO)
- ProShares Ultra 20+ Year Treasury (NYSEArca: UBT)
- Direxion Daily 30 Year Treasury Bull 3x Shares (NYSEArca: TMF)
Max Chen contributed to this article.