Pimco Boosts Government Debt as Treasuries Rally to Top Place

  • Total Return Fund increases position to 26% of assets from 22%
  • Long-term debt returns 3% this month, most among 144 indexes

The Pimco Total Return Fund boosted its holdings of U.S. government and related debt while a rush for the safest securities made Treasuries the No. 1 performers among developed bond markets.

The $89.3 billion fund, the world’s biggest actively run bond fund, increased its stake to 26 percent of assets last month, from 22 percent in December, Pacific Investment Management Co. said on its website. Treasuries due in a decade and longer returned almost 3 percent in February through Tuesday, the best performance of 144 debt indexes tracked by Bloomberg and the European Federation of Financial Analysts Societies.

The U.S. is attracting investors with 10-year yields of 1.76 percent, compared with 0.005 percent in Japan and 0.25 percent in Germany. Yields plunged worldwide this month as stocks tumbled and the Bank of Japan followed the European Central Bank in adopting negative interest rates, spurring demand for the safest assets. Federal Reserve Chair Janet Yellen is scheduled to address U.S. lawmakers Wednesday and Thursday.

‘Standing Out’

“The U.S. is standing out,” said Yusuke Ito, a senior investor at Tokyo-based Mizuho Asset Management, which oversees about $43.7 billion. “It’s high-quality, high-liquidity and yields are still high.”

The benchmark 10-year Treasury yield rose three basis points, or 0.03 percentage point, on Wednesday as of 7:10 a.m. in New York, according to Bloomberg Bond Trader data. The 2.25 percent security due in November 2025 fell 9/32, or $2.81 per $1,000 face amount, to 104 3/8.

The nation is scheduled to sell $23 billion of 10-year notes later Wednesday.

The Total Return Fund, managed at Pimco’s office in Newport Beach, California, has fallen 0.3 percent in the past year, based on data compiled by Bloomberg. The performance lagged behind about 60 percent of its peers.

In addition to Treasuries, the fund’s stake in government securities can include related investments such as inflation-protected bonds, futures contracts and agency debt, according to the Pimco website.

Bond gains may turn to losses this year as the economy expands and the Fed raises interest rates, according to Mark Kiesel, one of the three Total Return Fund managers. He recommended corporate debt in an interview Tuesday.

The Total Return Fund had 11.36 percent of its assets in investment-grade securities in January, the most since it started specifying the holdings in its monthly reports starting in March 2015.

Credit markets are pricing in the increasing likelihood of a recession that’s probably not going to happen, Kiesel said. “You’re literally looking at equity returns in bonds, by investing in high-quality corporate bonds,” he said. “That’s as exciting as we’ve seen it in seven years.”

U.S. investment-grade corporate debt yields 230 basis points more than Treasuries, the biggest premium since June 2012, based on Bank of America Corp. data. The difference was wider than 600 basis points during the recession of 2008.

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