Gross Sells Mortgage Debt After Fed Buying Cuts Yield

Photographer: Andrew Harrer/Bloomberg

Bill Gross, co-chief investment officer of Pacific Investment Management Co. Close

Bill Gross, co-chief investment officer of Pacific Investment Management Co.

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Photographer: Andrew Harrer/Bloomberg

Bill Gross, co-chief investment officer of Pacific Investment Management Co.

Bill Gross cut holdings of mortgage securities in the world’s biggest bond fund to the lowest level in 12 months after Federal Reserve purchases of the securities pushed yields to a record low in September.

Gross trimmed mortgage bonds to 44 percent of assets in the $285 billion Total Return Fund in November, according to a report on the Newport Beach, California, company’s website yesterday. While Gross sold mortgages for a fifth month, they are still the largest position in the fund. The second-biggest, U.S. government and Treasury debt, shrank to 23 percent of assets from 24 percent.

Mortgage bonds in a Bank of America Merrill Lynch index of the securities yield 1.37 percent after falling to 0.75 percent on Sept. 26, the least in data going back to 1992. Benchmark 10- year Treasury notes yielded 1.65 percent today as of 10:17 a.m. in Tokyo. The figures are less than the 2.2 percent rate of inflation based on consumer prices.

The Fed said in September it plans to buy $40 billion of agency mortgage-backed securities each month as part of its efforts to support the economy by capping borrowing costs. The central bank will probably announce $45 billion in monthly Treasury purchases following a meeting today, according to a Bloomberg News survey of economists.

Pimco’s Total Return Fund increased its holdings of debt from non-U.S. developed nations to 12 percent in November from 11 percent, according to the report on the website.

Gross kept emerging-market debt at 8 percent, municipal bonds at 5 percent and investment-grade credit at 11 percent. High-yield bonds fell to 2 percent from 3 percent.

Treasuries and mortgages have both returned 2.5 percent in 2012, Bank of America indexes show.

The Total Return Fund gained 10.4 percent this year, ranking in the 95th percentile among its peers, according to data compiled by Bloomberg. The fund’s government and Treasury debt category includes U.S. Treasury notes, bonds, futures and inflation-protected securities.

Pimco, a unit of the Munich-based insurer Allianz SE (ALV), managed $1.92 trillion as of Sept. 30.

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net.

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

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