Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., increased its holdings of Treasurys to 35 percent in May as yields on U.S. government securities approached record lows.
Gross raised the proportion of U.S. government and Treasury debt in the $260 billion Total Return Fund, bringing it up from 31 percent of its record asset holdings in April, Newport Beach, California-based Pimco said on its website. Holdings of mortgages dropped to 52 percent from 53 percent.
Investors should focus on debt of nations such as the U.S. and Brazil and avoid Europe until credit begins flowing again from the private sector as government solutions aren’t enough to stem the region’s debt crisis, Gross said two weeks ago. The yield on the benchmark 10-year note fell to a record low of 1.44 percent on June 1.
“We would suggest at Pimco avoiding the entire eurozone until they can come up with some type of solution which involves the private sector,” Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene on June 1.
“What does the private sector mean? It means those institutions outside of euro land. It does mean Pimco, it does mean China, it does mean those private institutions that are willing to take a chance again in terms of credit. Until you bring them back then no solution is really going to be possible.”
Pimco has also been among the investors positioning to benefit from a third round of debt purchases by the Federal Reserve by acquiring mortgage securities on bet they may be able to sell to the central bank at higher prices.
A windfall would represent a repeat for the fund, which holds money ranging from individuals’ retirement accounts to institutional investments, following its home-loan bets before the Fed acquired $1.25 trillion of mortgage bonds between January 2009 and March 2010.
The central bank, which meets June 19-20, purchased $2.3 trillion of debt in two rounds of quantitative easing from December 2008 to June 2011 to boost the economy. The figure includes $1.4 trillion in mortgages and $900 billion of Treasury debt.
Fed Chairman Ben S. Bernanke said June 7 the central bank remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate. Bernanke told the Joint Economic Committee in Washington that the Fed has the tools that would provide more support to the economy by boosting accommodation.
Economists at Morgan Stanley, Bank of America Corp. and JPMorgan Chase & Co. see greater odds for a third round of quantitative easing, or QE3. Morgan Stanley estimates the chances at 80 percent, up from 50 percent last month, and expects that the Fed would expand its mortgage-bond holdings by about $200 billion.
Pimco raised emerging-market debt to 8 percent, from 7 percent, and investment-grade credits was unchanged at 13 percent, the smallest ratio since March 2008.
Gross increased the Total Return Fund’s net cash-and- equivalent position to negative 21 percent, from negative 18 percent. The fund can have a so-called negative position by using derivatives, futures or by shorting.
The fund’s holdings of the bonds of non-U.S. developed nations was unchanged at 6 percent the previous month.
The Total Return Fund gained 6 percent over the past year, beating 76 percent of its peers, according to data compiled by Bloomberg.
The fund attracted $124 million in May, according to Morningstar Inc., as it outperformed its peers.
The fifth straight month of net deposits followed the addition of $2.7 billion the previous month. Investors pulled about $3 billion from the fund in the three months ended Dec. 31, bringing withdrawals last year to about $5 billion, said Chicago-based Morningstar.
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