Bloomberg News

Gross Boosts Treasury, Mortgage Debt in Flagship Fund

December 12, 2011

(Adds comment from Gross beginning in third paragraph.)

Dec. 9 (Bloomberg) -- Bill Gross, who runs the world’s biggest bond mutual fund at Pacific Investment Management Co., increased his holdings of Treasuries and mortgage debt amid a bet U.S. interest rates will stay low for years.

Government and Treasury debt as a percentage of the $241 billion Total Return Fund climbed to 23 percent from 19 percent the previous month, according to data posted on Newport Beach, California-based Pimco’s website today. Mortgage securities, the fund’s largest holdings, were increased to 43 percent from 38 percent in October. Pimco doesn’t comment on portfolio changes.

Gross eliminated Treasuries from the portfolio in February and has increased the holdings amount since then. U.S. growth won’t prevent the Federal Reserve from signaling that borrowing rates will remain lower longer than policy makers have already indicated, Gross said during a Dec. 2 Bloomberg radio interview after a report showed the jobless rate declined in November. Gross said the Fed will keep the target rate close to zero for as long as four years.

The economy still has “some slogging to do here,” Gross said last week from Pimco’s headquarters in Newport Beach, California. “The Fed is focusing on the problems in euro land and the potential lock-up of the financial markets.”

Fed officials hold their last policy meeting for year Dec. 13. The Federal Open Market Committee has said it will keep its rate for overnight loans between banks at zero to 0.25 percent through at least the middle of 2013.

Treasuries have returned 9.3 percent in 2011 in what would be their best year since the depths of the financial crisis in 2008, according to Bank of America Merrill Lynch indexes. The securities gained as European leaders struggled to agree on a coordinated approach to contain the region’s debt crisis.

The fund has returned 3.4 percent this year, trailing behind 72 percent of rivals. It has returned 7.8 percent on average over the past five years, topping 97 percent of its competitors, according to data compiled by Bloomberg. The firm managed $1.34 trillion in assets as of June.

--Editors: Dave Liedtka

To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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