US/UK - PIMCO is reducing its holdings of UK and US government bonds because of fears over increased borrowing and the withdrawal of quantitative easing programmes.
The fund management firm's announcement comes as The Bank of England is about to bring its £200bn (US$320.5bn) programme of asset purchases to and end and the government is looking to raise large amounts of money through the capital markets.
PIMCO said it had made the decision as it believed gilt and US Treasury prices would fall over the coming months.
Managing director and portfolio manager Paul McCulley explained: "For interest rate exposure, or duration, 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.
"On the other hand, we remain modestly bullish on duration in the Eurozone, which has been congenitally disinclined to be aggressively Keynesian and won't face the same degree of reduction in central bank duration buying in 2010."
Despite this, BNY Mellon Asset Management said a prolonged period of near zero interest rates would push investors into bonds.
Newton fixed income investment leader Paul Brain said: "Pension funds, insurance companies, endowments and retired individuals living on an income have already been steady buyers of government debt."
He said these buyers, together with bond-hungry banks, had so far taken up the extra new issuance comfortably - but warned the banks would have to take up the slack when quantitative easing programmes ended.
Brain explained: "When the official quantitative easing measures stop, it will be up to the banks to the banks to take up the reins and buy government bonds in order to improve their liquidity buffers."
He added: "Bond yield volatility could be an increasing feature over the next 12 months as investors grapple with large amounts of supply and the possible exit strategies of authorities."
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