Pimco Cuts U.S., U.K. Bond Holdings: Bond Collapse?

NOTE: Uncle Sam must roll over $2.5 trillion in debt during the next two years, banks worldwide have some $7 trillion due in the same stretch and commercial real estate will weigh in with another $750 billion.

Pacific Investment Management Co. is cutting its holdings of U.S. and U.K. bonds as borrowing rises and central-bank buying declines, hurting supply-and-demand dynamics.

The investment company, which runs the Total Return fund—the world's biggest bond fund—also is "becoming a bit more cautious than we have been" with corporate bonds, said Pimco Managing Director Paul McCulley in his outlook for the coming year. An interview transcript has been posted on Pimco's Web site.

"We weren't necessarily selling credit on any scale, but we'd reduced buying" in the second half of 2009, he said. "Now, we're generally neutral versus the benchmark, but we believe that corporate spreads are still at levels where we see value in carefully selected high-quality credits, particularly in bank and non-bank financials and non-cyclical sectors, such as utilities and health care."
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