The Pimco Total Return Fund, which lost its place as the world’s largest bond fund this year, cut almost two-thirds of its U.S. government debt holdings in May just in time for a June selloff.
Total Return, run by Pacific Investment Management Co., reduced government and related debt to 8.5 percent of assets from 23.4 percent in April, according to the company’s website, amid a second-quarter selloff in Treasuries. Benchmark 10-year yields reached an eight-month high on Wednesday, jumping from 2.12 percent at the end of May.
“We are seeing a bearish sentiment in the market and we are heading for higher yields as we approach the first” Federal Reserve interest-rate increase, said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “All of the fundamentals are pointing in a bearish direction for the bond market. There is a reflation theme building.”
Treasuries are selling off as part of a global bond rout, triggered by a decline in Germany that started in April as investors balked at record-low yields. U.S. job growth beat analysts’ expectations last week, underpinning forecasts for the Fed to boost borrowing costs this year.
U.S. government securities handed investors a 2.5 percent loss since the end of March through Tuesday, heading for their steepest quarterly decline since the last three months of 2010, based on Bloomberg World Bond Indexes.
Pimco’s Total Return Fund has returned 1.5 percent in the past year, beating 61 percent of its peers, according to data compiled by Bloomberg.
Its largest position is mortgage-related bonds, which accounted for 34.6 percent of holdings as of May 31, according to the website. The government category isn’t limited to Treasuries but can include related investments such as futures contracts and agency bonds, it says.
Total Return Fund, with $107.3 billion of assets, is managed by Scott Mather, Mark Kiesel and Mihir Worah after Bill Gross left the company in September. It gave up its place as the biggest bond fund to the Vanguard Total Bond Market Index Fund, according to data compiled by Bloomberg.