26 September 2014 by lberuti
It was a fairly quiet day in most asset classes today. Most but certainly not all. Every asset that Pimco is supposed to own actually took a beating. Credit indices, and particularly CDX IG, experienced a particularly difficult session. It was impacted in 2 different ways. Pimco is rumoured to have sold big chunks of protection on this index, and they are also supposed to own very large amounts of corporate bonds. If investors were to pull out money from their funds in the wake of Bill Gross’ departure, Pimco would have to buy these indices back which would certainly push them wider. They would also have to sell bonds, and other people also owning these securities could suffer. So buying credit indices is definitely one of the hedging possibilities at their disposal, which probably brought a few more buyers of credit indices. This also pushed CDX IG wider. No one knows what Pimco will do or if investors will pull their money, but the mere size of the potential rebalancing was enough to scare the hell out of the market.