Bill agree's with da Trashy: Spread'em
snip.......
"But buying the spread as I suggested previously, in part resembles our old Butler Creek strategies: buy higher yielding bonds that trade at significant spreads to Treasuries – corporate bonds, mortgages, and emerging market debt with yields averaging 200-300 basis points more than intermediate Treasury yields. They could be the 30-year bonds of AT&T, for instance, at 8% or 10-year debt of Mexico at 8 1/2%. They could be GNMA pass-throughs yielding 6 1/2% or even a few long-term Treasuries in the mid-5s. Together the portfolio should produce a 6 1/2- 7% yield in a world of 1 1/2% inflation. Not too shabby I’d say. In addition, there are strategies that implicitly seek to take advantage of the market’s current fears of excessive future Fed tightening. These strategies are different than those of Butler Creek days past because they produce significant capital gains, even if the Fed raises interest rates by 150 basis points over the next 12 months. In combination with corporate, mortgage and emerging market bonds that yield 6 1/2%+, they constitute the “spread” to which I refer on the first page of this Outlook.
So fear not dear readers and valued clients. The bull bond market may be over, but the reign of the “spread” has just begun. As long as the Fed doesn’t raise interest rates by 2% or more over the next 12 months, 2002 should be a great year for PIMCO portfolios. Total returns approaching 8% are likely, which in a 1 1/2% inflationary environment and a 5% stock market world over the longer term (see November’s Investment Outlook) are attractive returns indeed. It’s time to forget the cares and woes of the past few weeks and to have a Merry Christmas, a Happy Hanukkah, and a prosperous New Year. I myself, plan to spend a few of the season’s holidays scrimmaging with Shaq, Kobe and a few of my Laker friends down here in Laguna Beach. I thought about inviting Nick to play, which would be the thrill of his young life I suppose, but it may be a little early. I think I’ll just tell him the story about it in a few years or so. That should keep the Superman S on my chest at least until he graduates from high school.
William H. Gross
Managing Director
"
pimco.com |
