Tuesday, September 13, 2011

PIMCO's Gross boosts Treasuries in flagship fund

NEW YORK: Bill Gross, the manager of the world's largest bond fund, increased exposure to Treasuries dramatically in August, reflecting his view of the rising risks of recession in the United States.

According to PIMCO's website on Monday, Sept 12 Gross' $245 billion Total Return Fund (PTTRX.O) held 16 percent in U.S. Treasuries and Treasury-related securities as of the end of August 31, up from 10 percent as of the end of July.

In late August, Gross told Reuters that the precipitous decline in Treasury yields reflected a high probability of recession. The yield on the benchmark 10-year U.S. Treasury note then dropped below 2 percent to 1.98 percent. On Monday, the 10-year yield stood at 1.95 percent.

Treasuries "certainly reflect, in terms of their yields, not only a potential for a recession, but the almost high probability of recession and the result of lowering of inflation -- that is key," Gross said in August.

The Government Treasury classification in Gross' flagship fund includes fund holdings of U.S. Treasury notes, bonds, futures and inflation-protected securities, Pacific Investment Management Co said. In June, the Total Return fund held only 8 percent in U.S. Treasuries and Treasury-related securities.

Gross, who also helps oversee $1.2 trillion in assets as co-chief investment officer at PIMCO, also increased the Total Return fund's stake in non-U.S. debt and mortgages. In August, non-U.S. debt accounted for 18 percent of the Total Return portfolio, up from 13 percent in July. For its part, mortgages accounted for 32 percent of the fund in August, up from 25 percent the previous month.

Gross made headlines earlier this year and came under heavy criticism when it appeared he had ramped up a "short" position in U.S. Treasuries, given the furious rally in the debt securities.

But in May, it was revealed that PIMCO had been short swaps. Swaps are an agreement between two parties to receive a fixed rate of interest and pay a floating rate (three-month LIBOR). In August, the Total Return fund reversed its short position and had an exposure of 3 percent in swaps and liquid rates.

Gross told the Financial Times in August that he felt like "crying in his beer" for having bet so heavily against U.S. government-related debt earlier this year.

PIMCO's representatives said they do not comment on holdings. - Reuters

No comments:

Post a Comment