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Pimco Cuts Government Debt on Outlook for Fed Buying

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A PIMCO Advertisement In Hong Kong
A man walks past a Pacific Investment Management Company LLC (PIMCO) advertisment which is displayed on a building in Hong Kong. Pimco’s Total Return Fund gained 1.8 percent this year as of March 6, beating 56 percent of peers. Photographer: Brent Lewin/Bloomberg

March 11 (Bloomberg) -- Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., cut holdings of Treasuries and U.S. government debt in February as turmoil in Ukraine fueled haven demand and investors bet the Federal Reserve will conclude bond purchases this year.

The proportion of the securities in the $236 billion Total Return Fund was 43 percent, the company’s website showed. That compared with 46 percent in January, which was the most since at least July, when Pimco revised how it classifies assets. Mortgage debt accounted for 29 percent in February, the least since July 2011, compared with 36 percent the previous month.

The company’s U.S. credit category, which includes investment-grade and high-yield securities, was unchanged at 9 percent. Holdings of money-market debt and cash-equivalent securities were at zero, versus negative 8 percent in January.

Investors should “sell what the Fed has been buying because they won’t be buying them when taper ends in October,” Gross wrote in a comment on Twitter on March 7.

The Pimco Total Return Fund’s U.S. government-related category includes holdings of U.S. Treasury notes, bonds, agency debt, interest-rate swaps and inflation-protected securities. The company, a unit of the Munich-based insurer Allianz SE, doesn’t comment directly on monthly changes in holdings or specific types of securities within a market sector.

Gross held the Total Return Fund’s holdings of emerging-market bonds last month at 6 percent, unchanged from January. He increased non-U.S. developed debt to 9 percent, from 7 percent, the website data show.

Fed Purchases

The Fed has reduced monthly purchases of Treasuries and mortgage bonds this year to $65 billion, from $85 billion in 2013. Fed Chair Janet Yellen last month pledged further “measured” steps to slow the buying if economic improvement continues, and told lawmakers it’s likely to end in the fall.

The Labor Department reported March 7 that U.S. employers added 175,000 jobs in February, more than forecast, adding to bets the Fed will press on with the reductions.

Treasury 10-year note yields fell to a one-month low of 2.59 percent on March 3 as instability between Russia and Ukraine fueled haven demand. Turmoil intensified in the region after Ukrainian lawmakers ousted President Viktor Yanukovych in February and pro-Russian forces seized control of the Crimea region.

Pimco’s Total Return Fund gained 1.8 percent this year as of March 6, beating 56 percent of peers. The fund last year lost investors 1.9 percent, the most since 1994, while falling behind 65 percent of peers.

Investors pulled a net $1.6 billion from the fund in February, the least since May, according to an e-mailed statement from Pimco on March 3. Net redemptions have decreased this year from the fund, which lost its title as the world’s largest mutual fund in October to the Vanguard Total Stock Market Index Fund.

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

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

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