Pimco's Bill Gross Says the Bond Rally Is Over

Bill Gross, co-chief investment officer of Pacific Investment Management Co. Photograph by Scott Eells/Bloomberg

When you think about it, bond behemoth Pacific Investment Management is essentially central bank-like in its influence. Pimco manages $2 trillion in assets and runs the $293 billion Total Return Fund. So when its chief and founder, Bill Gross, takes up the holdings of tiny-yielding U.S. Treasuries in that fund to their highest level in nearly three years—during risk-on fever in global debt and equity capital markets—you have to take note.

The proportion of U.S. government securities in the Total Return Fund hit 39 percent in April, from 33 percent in March, according to Pimco’s website.

In his latest Investment Outlook, entitled “There Will Be Haircuts,”  Gross writes: “PIMCO’s advice is to continue to participate in an obviously central-bank-generated bubble but to gradually reduce risk positions in 2013 and perhaps beyond. While this Outlook has indeed claimed that Treasuries are money good but not ‘good money,’ they are better than the alternative (cash) as long as central banks and dollar reserve countries (China, Japan) continue to participate.” He then advises: “Give your own portfolio a trim as the year goes on. In doing so, you will give up some higher returns upfront in order to avoid the swift hand of Sweeney Todd. There will be haircuts. Make sure your head doesn’t go with it.”

Total Return beat 90 percent of its peers last year.

Today, Gross tweeted that the 30-year bull market for bonds “likely ended” on April 29.

At least in theory. Junk bonds just hit a record-low yield. The cost of protecting corporate debt from default in the U.S. is near lows unseen since November 2007. But in a show of investor risk aversion, the U.S. Treasury is having no problem borrowing money at exactly zero percent.

As Gross’s dispatch suggests, there’s little rhyme or reason to what’s going on out there in fixed income.