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Pimco’s Gross Cuts Emerging Debt as IMF Sees Slowdown

PIMCO Co-chief Investment Officer
Bill Gross, co-chief investment officer of Pacific Investment Management Co. (PIMCO). Photographer: Andrew Harrer/Bloomberg

May 10 (Bloomberg) -- Bill Gross, who runs the world’s biggest bond fund, cut his holdings of emerging-market debt to a two-year low, selling assets from an area where the International Monetary Fund says growth will slow.

Gross reduced the securities to 7 percent of assets in Pacific Investment Management Co.’s Total Return Fund in April from 10 percent in March, according to Newport Beach, California-based Pimco’s website. He trimmed investment-grade bonds to 13 percent from 14 percent. Treasuries were 31 percent of holdings, versus 32 percent in March, the report showed.

Growth in emerging economies will slow to 5.7 percent in 2012 from 6.2 percent in 2011, the IMF said in April. Tumbling Treasury yields have led investors to look for more attractive rates, spurring a 9 percent gain this year for a Bank of America Merrill Lynch index of emerging-market sovereign and company bonds. The Federal Reserve needs to do more to stimulate the economy to preserve the rally in “risk” assets, Gross said.

“Risk markets need more ammo if they are to stay up,” Gross wrote in a message on Twitter May 8.

Treasuries have returned 0.6 percent this year, according to Bank of America Merrill Lynch data show.

Gross kept mortgage securities as his biggest holding at 53 percent of assets, according to the report posted yesterday on the Pimco website. The Federal Reserve bank will probably shift its focus to mortgage securities in its next round of purchases to keep borrowing rates low, he said in March.

European Crisis

Gross increased the $258.7 billion Total Return Fund’s net cash-and-equivalent position to negative 18 percent from negative 23 percent. The fund can have a so-called negative position by using derivatives, futures or by shorting.

Prospects for additional Fed asset purchases increased after a Labor Department report May 4 showed U.S. employers added 115,000 jobs in April, the least in six months.

Europe’s fiscal crisis is threatening to slow global growth. As Greece faces political paralysis following an election, 57 percent of the 1,253 investors, analysts and traders in a poll of Bloomberg subscribers said at least one country will abandon the euro by year-end.

Ten-year Treasury yields rose three basis points, or 0.03 percentage point, to 1.89 percent at 8:02 a.m. in New York, according to Bloomberg Bond Trader prices. The 1.75 percent security due May 2022 fell 1/4, or $2.50 per $1,000 face value, to 98 24/32. The record low yield was 1.67 percent set Sept. 23. The average over the past decade is 3.82 percent.

Fund Performance

The Total Return Fund has handed a 4.9 percent gain to investors this year, beating 99 percent of its peers, according to data compiled by Bloomberg. It is up 6.1 percent over the past 12 months, better than 66 percent of its competitors. Pimco is a unit of the Munich-based insurer Allianz SE.

The U.S. central bank bought $2.3 trillion of bonds in two rounds from December 2008 to June 2011. The Fed is also replacing $400 billion of short-term Treasuries in its holdings with longer-term debt to keep borrowing costs down, under a program scheduled to end next month.

Another set of purchases is “getting closer,” Gross said in the Twitter post May 8.

To contact the reporters on this story: Susanne Walker in New York at; Wes Goodman in Singapore at

To contact the editors responsible for this story: Dave Liedtka at; Rocky Swift at

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