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Conservative Bond Funds Watch Nervously As Credit Swap Spreads Widen
Pimco Total Return Fund, which oversees $132 billion in assets, backed the bonds by selling credit default swaps to investors that pay off if AIG defaults, according to a filing with the U.S. Securities and Exchange Commission last month. The fund had sold insurance on $7.7 billion of bonds, including $4.8 billion issued by financial-services companies, as of the end of June.

The swaps are part of a larger bet by Gross that some beaten-down corporate bonds will recover because they are too important for the U.S. government to let them fail, analysts said. That theory was tested yesterday as Lehman Brothers Holdings Inc. filed for bankruptcy protection and AIG's request for $40 billion in loans was rebuffed by the Federal Reserve.

created Sep 16, 2008 by Jim Cowie

 
tags

derivative securities
credit swaps
swap spreads
pension fund
credit crunch
default risk

 

Discussion

1 response

 
  • Jim Cowie Sep 16, 2008
     
    Pimco TR is one of those rock-solid funds that makes up double-digit shares of the retirement portfolios of a lot of people who are nearing retirement age. I hope the total exposure to AIG and similar "can't fail" corporate paper is relatively small.
     
 
 
 
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