Fear and Redemption

Bill Gross, who lords over nearly $700 billion in bond assets as chief investment officer at Pimco, was early in calling out the excesses of the recent market, staying out of high yield debt offerings and subprime mortgage notes and sticking instead to short term bonds tied to treasuries. For more than a year, Gross’s firm had been saying the housing market was heading for a downturn and bond investors had become “wimps” for excepting low yielding investments that stripped away many of the covenants that historically protected fixed income investors. “We were acting like prisoners in an isolation ward, accepting our daily gruel,” he says. The caution hurt, his flagship Total Return fund was a good percentage point behind the index in the past year.”

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