Pimco Times Treasuries Market by Adding Before Second-Half Rally

  • Total Return Fund government-related debt at 28% of holdings
  • Treasuries return 1.9% in second half on outlook for Fed delay

The Pimco Total Return Fund tripled its stake in U.S. government debt over the past four months, just in time for Treasuries to stage a second-half rebound.

The world’s biggest actively managed bond fund increased its holdings of sovereign and related debt to about 28 percent of assets in September, according to its monthly allocation report last week. It was the highest level since February, rising from as low as 8.5 percent in May. Treasuries rallied Tuesday in Asia trading after being closed Monday for the U.S. Columbus Day holiday.

Treasuries have returned 1.9 percent in the second half, based on the Bloomberg World Bond Indexes, as signs of slowing economic growth around the world led traders to push back forecasts for when the Federal Reserve will raise interest rates. U.S. government securities slid 0.2 percent in the first six months of the year.

“Most market participants believe that there will be no rate hike this year,” said Hiroki Shimazu, the senior market economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second-largest bank. “The timing will be delayed. That has pushed down U.S. yields.”

Treasury 10-year note yields fell three basis points to 2.06 percent as of 6:52 a.m. in London, according to Bloomberg Bond Trader data. The price of the benchmark 2 percent security due in August 2025 rose 9/32, or $2.81 per $1,000 face amount, to 99 1/2.

Ten-year yields will climb to 3 percent by the end of March, Shimazu said. He had previously said he expected them to reach that level this year, he said.

Fed Expectations

Traders have scaled back forecasts for the first Fed rate increase in almost a decade, futures contracts indicate, as plunging Chinese stocks drove concern the world’s second-biggest economy is slowing. The ShanghaiComposite Index fell for four straight months through September, tumbling 34 percent.

In the U.S., a government report Oct. 2 showed the economy added 142,000 jobs in September, falling short of the 200,000 projected by a Bloomberg survey of economists. Retail sales probably rose 0.2 percent last month, matching August’s figure, based on responses from economists before data Wednesday.

The $95.5 billion Total Return Fund’s government holdings aren’t limited to Treasuries and can include related investments such as inflation-protected debt, futures contracts and agency securities, according to the Pimco website.

Total Return Fund has gained 1.2 percent in 2015, beating 65 percent of its peers. It’s the best performance against its competitors since 2012, based on data compiled by Bloomberg. Bill Gross ran the fund until he left Pimco, which is in Newport Beach, California, in September of 2014 for Denver-based Janus Capital Group Inc.

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