Treasuries rose for a third day as DoubleLine Capital LP’s Jeffrey Gundlach said yields are poised to fall further and Pacific Investment Management Co.’s Bill Gross cut his holdings of U.S. government-related debt.
Gross, manager of the world’s biggest bond fund, reduced the allocation in his $236 billion Total Return Fund to 43 percent in February from 46 percent a month earlier as the Federal Reserve cut its bond-buying program, data on Pimco’s website showed yesterday. Gundlach, the founder of Los Angeles-based DoubleLine Capital, said yesterday on a webcast that 10-year yields will slide to 2.5 percent this year as the Fed tapers amid a slowing global economy.
“Sell what the Fed has been buying because they won’t be buying them when taper ends in October,” Gross, who is based in Newport Beach, California, wrote on Twitter last week.
The yields on the benchmark 10-year note fell four basis points, 0.04 percentage point, to 2.73 percent as of 5 p.m. in New York, Bloomberg Bond Trader data show. They dropped as much as six basis points, the most since March 3. The 2.75 percent note due in February 2024 rose 10/32, or $3.13 per $1,000 face amount, to 100 5/32.
Gross and Gundlach differ as investors try to discern how much the weather slowed the world’s biggest economy. Treasury benchmark 10-year yields have fallen about a quarter percentage point this year, contrary to the predictions of analysts who expected borrowing costs to rise, as winter storms slowed housing, consumption and employment.
The U.S. sold $21 billion of 10-year notes today at a lower-than-forecast yield of 2.729 percent.
Benchmark 10-year yields will rise to 3.4 percent by year-end, based on a Bloomberg survey of economists, with the most recent forecasts given the heaviest weightings.
Fed Chair Janet Yellen said last month the central bank will probably maintain its strategy of trimming bond purchases under its quantitative-easing stimulus program. Policy makers reduced purchases by $10 billion in January and again in February, to $65 billion. The central bank’s next meeting is March 18-19.
While job gains failed to meet expectations in December and January, U.S. employers added 175,000 positions in February, beating the projection of 149,000 among economists in a Bloomberg News survey, Labor Department figures March 7 showed.
“People are really waiting for cleaner data releases to inform their trading,” said Christopher Sullivan, who oversees $2.275 billion as chief investment officer at United Nations Federal Credit Union in New York. “There’s not a great deal of conviction one way or the other.”
Gross’ Total Return Fund (PTTRX) has fallen 0.4 percent in the past year, ranking in the 19th percentile among its peers, according to data compiled by Bloomberg.
Pimco cut holdings of government-related debt to 35 percent in August from 39 percent in July, the only drop since the company reclassified assets in June.
Pimco was the only provider among the top 10 mutual fund families to suffer net withdrawals last month, according to a report from Morningstar Inc.
Pimco’s mutual funds lost $2.49 billion to client redemptions in February, bringing net withdrawals to $56.1 billion in the past year, Chicago-based Morningstar estimated today in a report.
The $31.5 billion DoubleLine Total Return Bond Fund gained 1.6 percent to place in the 81st percentile.
Treasuries were near the cheapest level in almost four years versus their global peers before today’s 10-year auction.
Government securities due in seven to 10 years yielded 95 basis points than non-U.S. sovereign debt as of yesterday, Bank of America Merrill Lynch data showed. The spread was 98 basis points the day before, a level not seen since April 2010.
“People do expect to see higher rates, but they are looking for a gradual move,” said Tom Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp.
The 10-year notes were sold today at a bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, of 2.92. That’s the highest since March and compares with an average of 2.62 at the past 10 sales.
Indirect bidders, which include foreign central banks, bought 43.4 percent of the securities. Direct bidders, non-primary dealers buying for their own accounts, purchased 27.5 percent of the notes, the highest proportion since September.
The U.S. auctioned $30 billion in three-year notes yesterday. Indirect bidders purchased 29.9 percent, compared with 42 percent last month that was the most since August 2011.
The Treasury will conclude this week’s sales with a $13 billion 30-year bond auction tomorrow.
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