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TIPS Heavy-Hitter May Be Driving Breakevens

Some asset managers are speculating a large holder of TIPS is driving up breakevens, or the difference in yield between nominal Treasuries and the inflation-linked variety, on two-year TIPS.

Some asset managers are speculating a large holder of TIPS is driving up breakevens, or the difference in yield between nominal Treasuries and the inflation-linked variety, on two-year TIPS. The breakeven for January '07 TIPS has skyrocketed to a near eight-year high, significantly outpacing other TIPS, and some investors are fingering Pacific Investment Management Co. "In TIPS, PIMCO is not the 800-pound gorilla, it's the 8,000 pound gorilla," one investor said.

PIMCO is known to be fond of TIPS: Bill Gross, cio, recently sent a letter to his investment committee advising it to overweight TIPS and he has repeatedly advised investors to buy TIPS through his monthly commentaries. The asset manager holds a whopping 17.4% of the nearly $16 billion January '07 issuance, according to one portfolio manager.

John Brynjolfsson, head of the PIMCO Real Return Bond Fund and the manager's resident TIPS expert, referred calls to Mark Porterfield, PIMCO spokesman. Porterfield did not return a call by press time.

 

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