PACIFIC Investment Management Co (Pimco), the world’s biggest bond fund, said yesterday it will cut its exposure to government bonds in the UK and US, amid fears that the end of quantitative easing and rising public debt could scupper the economic recovery.
Pimco leads a number of large funds which are concerned that UK and US governments will struggle to manage their record debts as they step up borrowing this year.
Pimco managing director Paul McCulley said in a statement on the firm’s website: “We are currently cutting back in the US and UK because… supply and demand dynamics are likely to be negatively affected as borrowing rises and central bank buying declines.”
Other big funds, such as BlackRock, Barings Asset Management and Standard Life Investments, also share Pimco’s fears
These funds worry that a big rise in government bond yields, or interest rates, triggered by market concerns about public finances, could mean rising mortgages and higher business borrowing costs.
Worries over the US and UK government bond markets have seen them sharply underperform other European bond markets such as German bunds in the past month.
Britain is expected to sell £220bn of gilts in the current financial year – four times the average annual amount sold in the five years before the collapse of Lehman Brothers.