By Min Zeng
Some corners of the bond market faltered on Monday as some
traders and investors pared exposure to positions closely
associated with Bill Gross before his abrupt departure from Pacific
Investment Management Co. last week.
Prices on some U.S. inflation-indexed Treasury bonds fell for
the second day on Monday. The bout of selling has sent the yield on
Treasury inflation-protected securities to 0.82% on Monday from
0.764% on Thursday, according to Tradeweb. Yields rise as prices
fall.
Yields on the sovereign debt of so-called peripheral eurozone
nations, or those countries that recently have struggled with a dim
outlook for economic growth, rose slightly on Monday. The yield on
Spanish 10-year debt rose by 0.03 percentage point to 2.227%, while
the yield on Italian bonds rose by 0.02 percentage point to 2.41%.
Meanwhile, yields fell on bonds issued by more financially stable
countries such as Germany.
Mr. Gross said earlier this year TIPS are valuable to hedge
against higher U.S. inflation in the longer term, while the
European Central Bank's bold steps in printing money to support the
economy bolstered the value of government bonds in the
eurozone.
"The Pimco effect is going to play out over time, which means we
could see a lot of volatility is certain sectors" of the bond
market, said Kevin Giddis, head of fixed income at Raymond James in
Memphis, Tenn.
Traders said more fundamental reasons were moving markets as
well on Monday. Unrest in Hong Kong revived global-growth worries,
helping to spur a selloff of riskier assets worldwide.
The broader $12 trillion Treasury market, which weakened on
Friday in part due to the news about Mr. Gross, rallied on
Monday.
"The Treasury bond market is very large and beyond some
short-term potential market disruption related to Gross'
departure," said James Sarni, senior managing partner at Payden
& Rygel in Los Angeles, which manages about $85 billion. "I am
confident that the bond market will move beyond this news as it has
so many other noteworthy events."
Investors and traders say the Pimco factor will be most
pronounced on the value and trading of the markets that are
relatively less liquid.
"What's being impacted are the less-liquid asset classes, such
as credit, foreign sovereigns, and emerging-market debt, under the
theory that, if Pimco sees redemption and needs to sell these
positions, they'll have to do so at a discount to current levels to
get the bonds sold," said Guy Lebas, chief fixed-income strategist
at Janney Montgomery Scott, which has $58 billion in assets under
management.
Write to Min Zeng at min.zeng@wsj.com