I don’t pretend to understand the bond market. So, from the master…

Pimco’s Gross Boosts Cash to Most Since Lehman Failed (Update3)

Dec. 18 (Bloomberg) — Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., cut holdings of government debt and boosted cash to the most since Lehman Brothers Holdings Inc. collapsed in September 2008.

Gross increased cash in the $199.4 billion Total Return Fund’s to 7 percent in November from negative 7 percent in October, according to Pimco’s Web site. The fund can have a so- called negative position by using derivatives, futures or by shorting. He reduced government-related securities to 51 percent from a five-year high of 63 percent in October.

Pimco is selling government debt as economists say U.S. gross domestic product will grow enough in 2010 to lead the Federal Reserve to raise interest rates. The Fed will increase its target for overnight loans between banks to 0.75 percent in a year, versus the current rage of zero to 0.25 percent, a Bloomberg survey of banks and securities companies shows.

My feeble translation is this: Pimco is going to cash because of expectations of lower prices (and higher yields; go TBT). There will be a rate hike at some point, either because of economic recovery (doubtful IMO) or pressure from foreign investors demanding higher yields on the back of US astronomical debt. The equity markets hate to think about the Big Picture, ie a macro view. That’s where the turmoil would come from.

Anyway, I think you’re right about the next few weeks. Never underestimate the power of the street to window dress at year end.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aQYnPNqVNIsg&pos=2

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• From Bloomberg: Absence of ‘Sugar Daddy’ to Hurt Markets, Gross Says
• Important News - Nov. 06

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