(Adds Gross comments and more asset-allocation shifts; byline)
By Jennifer Ablan
June 10 Bill Gross, who runs the world's biggest
bond fund at Pacific Investment Management Co, raised his
holdings of U.S. Treasuries and government-related debt in May
on a bet the Federal Reserve will keep interest rates low for
longer than expected.
Gross's Pimco Total Return Fund, with $229 billion in
assets, had 50 percent of its assets in U.S. government-related
holdings in May, up from 41 percent the previous month,
according to Pimco's website on Tuesday.
Pimco is owned by Allianz S.E., a leading global
diversified financial services provider.
Last week, Gross said the firm believes the "new neutral"
inflation-adjusted federal funds rate will be close to 0 percent
as opposed to 2 percent to 3 percent in prior decades.
"If 'The New Neutral' rates stay low, it supports current
prices of financial assets," Gross said in his latest investment
letter. "They would appear to be less bubbly."
Pimco, which manages $1.94 trillion in assets, introduced
its new-neutral outlook in May. New neutral suggests the global
economy is transforming from a post-financial crisis recovery
period called the New Normal in 2009, toward stability
characterized by modest economic growth over the next three to
Pimco's U.S. government-related category may include nominal
and inflation-protected Treasuries, Treasury futures and
options, agencies, FDIC-guaranteed and government-guaranteed
corporate securities, and interest rate swaps.
Gross's move into U.S. government-related securities also
comes as the Pimco Total Return fund's cash equivalents and
money-market securities showed negative 9 percent in May, from
5.0 percent in April.
In having a so-called negative position in cash equivalents
and money-market securities, it is an indication of using
derivatives and short-term securities as collateral in order to
boost the fund's buying power with leverage.
Gross is not alone in his rates view. Jeffrey Gundlach,
chief executive officer of DoubleLine Capital LP, a major Pimco
rival, said on Tuesday that the 10-year U.S. Treasury note will
likely be in a range between 2.20 percent and 2.80 percent
during the second half of year.
The Pimco Total Return Fund, meanwhile, increased its
mortgage holdings to 22 percent in May from 19 percent in April,
while reducing its U.S. credit holdings to 11 percent in May
from 12 percent in April.
The Pimco Total Return Fund had 13 percent of its assets in
non-U.S. developed markets last month, up from 11 percent in
April, while the fund had 8 percent in emerging markets last
month, up from 7 percent in April.
"Commonsensically it seems to me that the more finance-based
and highly levered an economy is, the lower and lower real yield
levels must be in order to prevent a Lehman-like earthquake,"
"If the price of money is the basis for an economy's
prosperity - and it is increasingly so in developed global
economies - then central banks must lower the cost of money to
maintain that prosperity - and keep it low."
(Reporting by Jennifer Ablan in New York; Editing by Chris
Reese and Lisa Shumaker)