Gross’s Treasury Holdings at 6-Month High, Mortgages Cut

Bill Gross raised the percentage of Treasuries held in his flagship fund to 30 percent in January, the most since July, after advising investors to purchase five-year Treasuries and inflation-indexed debt amid monetary policy.

The world’s biggest manager of bond funds increased the proportion of U.S. government and Treasury debt in Pacific Investment Management Co.’s $285.6 billion Total Return Fund from 26 percent of assets in December, according to a report on the company’s website. Gross cut mortgages holdings to 37 percent, the lowest since August 2011 after holding 42 percent in December. Newport Beach, California-based Pimco doesn’t comment directly on monthly changes in its portfolio holdings.

Gross has been cutting back on mortgage holdings since April 2012 when the fund held 53 percent of the securities, the highest since June 2009.

Gross had initially boosted his bets on government-backed mortgage securities with low coupons before the Federal Reserve in September launched its third round of bond buying with a focus on those notes, in a bid to bolster consumer finances and the housing market. Gross said in a Jan. 4 interview on Bloomberg Television that gains from the debt “are over in terms of the capital appreciation.”

Yield Gap

The difference between yields on Fannie Mae’s current coupon, 30-year mortgage bonds and 10-year Treasuries widened to 1.19 percentage points last week, the highest since Sept. 6, according to data compiled by Bloomberg. The spread, which reached an all-time low of 0.55 percentage point on Sept. 25 after the Fed began acquiring $40 billion of such debt a month, fell 0.02 percentage point to 1.17 percentage point as of 4:30 p.m. in New York.

Gross raised the Treasuries holding for the second straight month. Investors should purchase Treasury five-year maturities and avoid longer-term bonds, which reflect future inflation, Gross said in a Twitter post on Feb. 8, adding that economies are too highly levered for any central bank to raise interest rates for years.

Investors should protect their holdings with inflation-linked bonds as the Fed’s quantitative-easing stimulus strategy of buying assets will ultimately fuel inflation, Gross said in an interview on Bloomberg Television on Feb. 4.

Holdings Categories

The Total Return Fund kept its holdings of non-U.S. developed nations’ debt steady at 12 percent in January. Gross also kept the fund’s emerging-market debt at 7 percent, the same amount it held in December, and its municipal-bonds holding remained unchanged at 5 percent. The fund’s investment-grade credit holdings dropped to 9 percent in January, from 10 percent the previous month.

High-yield debt remained steady at 2 percent.

The Total Return Fund gained 10.4 percent in 2012, beating 95 percent of its peers, according to data compiled by Bloomberg. Treasuries returned 2.2 percent last year, according to Bank of America Merrill Lynch indexes.

The Pimco fund’s government and Treasury debt category includes fund holdings of U.S. Treasury notes, bonds, futures and inflation-protected securities.

Pimco, a unit of the Munich-based insurer Allianz SE, managed $2 trillion in assets as of Dec. 31.

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