Vladimír Urbánek (Kurzy.cz)
Markets  |  February 27, 2013 16:40:20

Gross (PIMCO): The degree of irrationality in the market increases

According to world-renowned investor and chief fund Pacific Investment Management (PIMCO) Bill Gross degree of irrationality in the capital markets is increasing, which is reflected in the valuation of many assets. Degree of irrationality on a scale 1 to 10 achieved by Gross grade 6 and will continue to grow. According to Gross, one of the main triggers growth of irrationality influx of cheap money from the Fed. Appreciation primarily corporate bonds and so-called junk bonds is now much out of reality. Yield spreads compared to risk-free assets are record low while a record corporate profit margins are in a fragile macroeconomic environment room for decline.

Bank during this year of bonds subscribed vysokoúročené mld.USD about 86, which represents an annual growth of about 36%. It was last year's 433 mld.USD for this asset class historical record.
Average yields so-called junk bonds fell to 6.54% compared to the current 22.7% in 2008.

Gross said that gradually reduces the proportion of high-risk and vysokovýnosových assets in its portfolio from 10% in December 2012 from the current approximately 9%. Gross warns against buying U.S. government bonds with a maturity longer than 5 years.
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