How Pimco Shook Hands With The Fed — And Made A Killing…(Facism, Pure And Simple!)
Carrick Mollenkamp and Cezary Podkul
SEP. 27, 2013
Through the second half of 2011, debate raged in financial markets over whether the U.S. Federal Reserve would embark on a third round of massive bond purchases, known as “quantitative easing,” to shore up an anemic economy. Pacific Investment Management Co wasn’t waiting to find out.
The giant fund-management firm, led by co-founder Bill Gross, started buying tens of billions of dollars in mortgage-backed securities guaranteed by federally sponsored agencies like Fannie Mae and Freddie Mac. In the third quarter of 2011 alone, Pimco’s flagship Total Return Fund, the world’s largest mutual fund, doubled its holdings of these securities to $80 billion, according to a Reuters review of trading and other data.
While Pimco was building its hoard, the Fed, in a surprise move long before any word on quantitative easing, said it would start buying more of the same kind of debt, known in the trade as “agency MBS.” The U.S. central bank would acquire as much as $30 billion of the securities a month by reinvesting proceeds from its earlier purchases. Prices rose.