Tags: pimco | inflation

Pimco Profits on Rising Inflation

By    |   Wednesday, 06 Jul 2011 01:56 PM

Inflation has risen to an annual rate of 3.6 percent. While that’s not good news for consumers, it’s paying off big for money management goliath Pimco.

The firm recently booked a return of about $50 million on an inflation-related trade, people familiar with the situation tell The Wall Street Journal.

The Pimco inflation securities team began buying 30-year Treasury Inflation Protected Securities (TIPS) earlier this year amid concern about rising prices. TIPS protect bond investors’ principal and interest payments from inflation.

Pimco was able to snap up several billions of dollars in 30-year TIPS at a June 23 auction, a knowledgeable source told The Journal.

To be sure, not all is rosy for Pimco, whose Bill Gross manages the world’s biggest mutual fund – Pimco Total Return. He created a short exposure to Treasuries in the fund earlier this year. But 10-year Treasury yields have dropped to 3.10 percent Wednesday morning from 3.75 percent Feb. 8.

Pimco officials aren’t the only ones concerned about rising inflation. “Economic growth will continue to accelerate and inflation should accelerate with it,” Omair Sharif, an economist at RBS Securities, tells Bloomberg.

“The Fed is going to have to start worrying.”

After its most recent meeting June 22, the Federal Open Market Committee issued a statement saying, “Inflation has picked up in recent months, mainly reflecting higher prices for some commodities and imported goods, as well as the recent supply chain disruptions. However, longer-term inflation expectations have remained stable.”

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Inflation has risen to an annual rate of 3.6 percent. While that s not good news for consumers, it s paying off big for money management goliath Pimco. The firm recently booked a return of about $50 million on an inflation-related trade, people familiar with the situation...
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Wednesday, 06 Jul 2011 01:56 PM
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