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Big investor dumps its U.S. Treasury bonds

U.S. bonds

TEXT OF STORY

Kai Ryssdal: We're talking bonds today. Specifically, the world's biggest and most influential bond fund: PIMCO.

It's mostly getting out of one of the surest bond investments going. That'd be U.S. government debt. The guy running it says he's a little worried about the long-term future of the American economy.

Everybody's entitled to his opinion. But PIMCO's move doesn't necessarily mean the apocalypse is upon us. Our New York bureau chief Heidi Moore reports.


Heidi Moore: A lot of Americans keep a pretty decent chunk of their savings in U.S. government bonds. Treasury bonds are supposed to the safest, most stable investment around. So when Bill Gross, the manager of the world's biggest bond fund, says he's going to dump most of the Treasuries he owns -- well, you may worry a little.

Daryl Jones: The reason why it's important to listen to a guy like Bill Gross: What he says really will move the market.

That's Daryl Jones, an analyst with Hedgeye Risk Management. He agrees with Gross that Treasury bonds may be at the end of their incredible four-year rally.

Here's why: Treasuries, like your home loan or your car loan, are really sensitive to interest rates. When the economy improves, interest rates go up and Treasuries suffer. So in the short term -- say, in the next year -- the economy actually looks pretty good, says Janney Montgomery Scott analyst Guy Lebas.

Guy Lebas: By selling government bonds, Bill Gross is implicitly saying: 'Hey, we expect conditions to improve a little bit.'

It's what happens after that that has Gross worried. All of the Treasuries he's dumping are the ones with long maturities, like 30 years. The government has been on a giant spending spree, and it issues Treasury bonds to fund it. If the government keeps spending so much, there's trouble ahead, says Lebas.

Lebas: There's a good probability that if Congress is unable to reign in spending, then the U.S. will see a negative outlook on its credit rating in the next several years.

Let's regroup then to talk about the end of the world.

In New York, I'm Heidi Moore for Marketplace.

About the author

Heidi N. Moore is The Guardian's U.S. finance and economics editor. She was formerly the New York bureau chief and Wall Street correspondent for Marketplace.

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