Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., reduced holdings of U.S. government-related debt in July as yields tumbled.
The company’s $239.3 billion Total Return Fund’s investment in the debt was cut to 54 percent of assets last month, from 63 percent in June, according to the website of Newport Beach, California-based Pimco. The share of emerging-market debt increased to a record 11 percent, from 10 percent. The fund also boosted mortgage debt to 18 percent, the most since September.
The fund has returned 12.8 percent in the past 12 months, beating 70 percent of its peers, according to data compiled by Bloomberg. It gained 1.95 percent over the past month, a performance superior to 78 percent of competitors. Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.1 trillion of assets as of June 30.
Pimco’s U.S. government-related debt category can include conventional and inflation-linked Treasuries, agency debt, interest-rate derivatives, Treasury futures and options and bank debt backed by the Federal Deposit Insurance Corp., according to the firm’s website.
Gross boosted the Total Return Fund’s mortgage composition in July from 16 percent in June. It increased its high-yield holdings to 4 percent, from the 3 percent level, and non-U.S. developed debt to 5 percent from 3 percent. It increased its net cash-and-equivalent position to negative 12 percent from negative 15 percent.
Eight-Month High
Gross boosted the fund’s composition of government-related debt to an eight-month high in June, following weaker-than- expected economic reports.
He said earlier this month that the Fed is unlikely to raise interest rates for two to three years as it seeks to keep the economy from slipping back into recession.
The Fed retained a commitment to keep its benchmark interest rate close to zero for an “extended period” of time in its statement on Aug. 10, holding the target lending rate for overnight lending between banks at zero to 0.25 percent.
“When you analyze that portion of the curve, it says the Fed is on hold for a long, long time,” Gross, said on Aug. 6 during a radio interview on “Bloomberg Surveillance” with Tom Keene. “When you get down to 50 basis points on two-years, that’s giving you a signal that there’s not much left on the table.”
Two-Year Note
Two-year note yields touched a record low 0.4892 percent on Aug. 11, a day after the central bank’s decision to reinvest principal payments on mortgage assets it holds into U.S. debt to support the economy.
“The pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Federal Open Market Committee said in a statement in Washington. “To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level.”
In testimony before the Senate Banking Committee on July 21, Fed Chairman Ben S. Bernankesaid the “economic outlook remains unusually uncertain.” St. Louis Fed President James Bullardwrote in a paper released July 29 that the central bank should resume purchases of Treasuries if the economy slows and prices fall.
The central bank bought $300 billion of government debt from March to October 2009 to bring down borrowing costs.
U.S. economic growth slowed to a 2.4 percent annual rate in the second quarter from a 3.7 percent pace in the first three months of the year.
Pimco's El-Erian Interview Excerpt
Aug. 13 (Bloomberg) -- Mohammed El-Erian, chief executive officer and co-chief investment officer at Pacific Investment Management Co., discusses Federal Reserve monetary policy. El-Erian, speaking with Tom Keene and Ken Prewitt on Bloomberg Radio's "Bloomberg Surveillance," also discusses deflation and the outlook for the U.S. economy. (This report is an excerpt of the full interview. Source: Bloomberg)
by Susanne Walker Bloomberg August 13, 2010
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