Pacific Investment Management Co.’s Bill Gross reduced his holdings of Treasuries and government-related debt in June as the securities fell amid speculation economic growth was strong enough for the Federal Reserve to raise interest rates.
The proportion of U.S. government-related debt in the $225 billion Total Return Fund was 47 percent last month, data on the company’s website showed. That compared with 50 percent the previous month, which was the highest level since 54 percent in July 2010.
Gross is betting on shorter-term Treasuries even after a stronger-than-expected jobs report showed the U.S. added 288,000 jobs last month. The data also showed annual wage growth slowed to 2 percent, which he said is holding inflation below the Federal Reserve’s target. The central bank won’t be quick to raise interest rates from virtually zero, he said.
“It’s actually the wage number that is critical, and the jobs that takes second seat,” Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Michael McKee on July 3. “To get to the 2 percent inflation target that the Fed wants to get to, assuming a 1 percent productivity number, you are going to have to see wages at 3 percent plus. So the Fed is willing to stay put here.”
Pimco maintained mortgage-bond holdings last month at 22 percent. Holdings of money-market debt and cash-equivalent securities were negative 11 percent, compared with negative 9 percent in May.
The fund’s holdings in the U.S. credit category, which includes investment-grade and high-yield securities, increased to 12 percent, from 11 percent, according to the data.
Gross increased the Total Return Fund’s proportion of emerging-market bonds last month to 9 percent, from 8 percent in May. He boosted non-U.S. developed debt to 16 percent, from 13 percent, the website data show.
Pimco, 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.
The world’s biggest bond fund suffered the 14th straight month of net client redemptions in June as Gross struggled to turn around performance. Estimated net redemptions were $4.5 billion, shrinking assets from a peak of $293 billion last year, Chicago-based research company Morningstar Inc. said July 2 in an e-mailed statement.
The fund has returned 3.4 percent this year, beating 42 percent of its peers. Last year it lost investors 1.9 percent, the most since 1994, trailing 66 percent of peers.
Its U.S. government-related category includes holdings of U.S. Treasury notes, bonds, agency debt, interest-rate swaps and inflation-protected securities.
Treasuries lost 0.1 percent in June after gaining 1 percent in May and 0.6 percent in April, according to the Bloomberg U.S. Treasury Bond Index.
Gross has been betting on five-year Treasuries, which are more sensitive to changes in the central-bank rate than longer-term bonds, saying markets are overestimating how much the Fed will raise borrowing costs.
U.S. notes due in one to five years have returned 0.6 percent this year, while Treasuries maturing in 10 years or more have gained 12 percent, according to Bloomberg U.S. Treasury Bond indexes.
Gross has wagered almost $200 million of his own money betting that interest rates will stay low. With an estimated net worth of $2 billion, Gross poured almost $60 million of his wealth into closed-end funds in May and June, adding to about $140 million he already had in such holdings, according to data compiled by Bloomberg.
The Fed has held the benchmark interest-rate target in a range of zero to 0.25 percent since December 2008 to support the economy.
Reports last month showed gains in home sales, manufacturing production, consumer confidence and service businesses.