By: Dan Weil
Pimco’s star bond manager Bill Gross has offered a bearish view on Treasurys in his latest market commentary and remarks to the media. And according to a report on ZeroHedge.com, he acted on this bearishness in January, selling all of the Treasury holdings in Pimco’s Total Return Fund, the world’s largest mutual fund.
Pimco officials weren’t immediately available for comment. Zero Hedge didn’t say how it got the figures for holdings as of February.
“Based on still to be publicly reported data …, the world's largest bond fund, in the month of January, has taken its (U.S. government) bond holdings to zero,” the ZeroHedge report states.
“The offset, not surprisingly, is cash. After sporting $28.6 billion in ‘government related’ securities, TRF (Total Return Fund) dropped to $0, while its cash holdings surged from $11.9 billion to a whopping $54.5 billion, based on total TRF holdings of $236.9 billion as of February 28.”
That represents the fund’s highest cash total ever and its first zero position in Treasury’s since January 2009, according to ZeroHedge. It says Pimco’s Treasury holdings peaked in June 2010 at $147.4 billion and have dropped steadily afterward. Gross had cut the holdings to 12 percent of assets in January, according to the Newport Beach, Calif.-based company’s website.
Pimco's Bill Gross That decline means Gross “is now convinced there will be no QE3 at all, at least based on his just putting his money where his monthly pen is!” the report states.
“And if Bill Gross, the most connected person to the upcoming actions by the Fed, believes there is no more quantitative easing, it is really time to get the hell out of dodge in all security classes — bonds, and most certainly, equities.”
As for Gross’ own words, Treasury’s represent “the most overvalued area of the bond market,” he recently told Yahoo’s Tech Ticker. The reasons for that are the 0.25 percent federal-funds rate that the Fed has kept in place for more than two years and its open-market purchases of Treasury’s under quantitative easing that have run at an annual rate of $1.5 trillion.
In his March commentary, Gross asks who will buy Treasury’s when the Fed ends its purchases under QE2, now scheduled for June.
Foreign countries with excess currency reserves, like China, will continue their $500 billion of annual purchases, he says. Aside from them, he’s not sure. But, “Someone will buy them, and we at Pimco may even be among them,” Gross says.
“The question really is at what yield and what are the price repercussions if the adjustments are significant.” And Gross says Treasury yields could be set to surge.
“What I would point out is that Treasury yields are perhaps 150 basis points too low when viewed on a historical context and when compared with expected nominal GDP growth of 5 percent.” (One basis point is equivalent to 0.01 percent, or one-hundredth of a percentage point.)
That’s especially true given that the amount of outstanding Treasury’s held by private investors totals only 40 percent, and the amount held by the Fed and foreign governments is sharply rising, he says.
"It becomes a question of musical chairs to a certain extent: who gets out first and who's the last one looking for a chair on June 30," when QE2 ends, Gross tells Yahoo.
Pimco’s U.S. government-related debt category can include conventional and inflation-linked Treasury’s, agency debt, interest-rate derivatives, Treasury futures and options and bank debt backed by the Federal Deposit Insurance Corp., according to the company’s website.