Pacific Investment Management Co.’s Bill Gross wrote in a message on Twitter that the 30-year bull market for bonds “likely ended” on April 29.
Gross, the founder of Pimco and manager of the world’s biggest bond fund, has been advising investors to sell riskier assets and buy government debt, including inflation-linked securities and nominal Treasuries as central banks pursue unprecedented stimulus measures. He raised the holdings of Treasuries in his flagship fund in April at to the highest level since July 2010.
Treasuries, for now “are a better alternative than cash,” Gross wrote in his monthly investment outlook on May 1. “Current policies come with cost, even as they magically float asset prices higher. Negative real interest rates, inflation, currency devaluation, capital controls and outright default” are among the costs, or “haircuts,” from global central banks’ unprecedented monetary stimulus.
Yields on benchmark 10-year U.S. Treasury notes fell to 1.61% on May 1, the least since December. The yield dropped to a record low of 1.38% in July 2012. The yield climbed to 1.9% today for the first time March 7.
The proportion of U.S. government securities in the $292.9 billion Total Return Fund increased to 39%, from 33% in March, according to data released yesterday on Newport Beach, California-based Pimco’s website. Mortgage holdings rose to 34%, from 33% in March, which was the lowest level since August 2011. The company doesn’t comment directly on monthly changes in its portfolio holdings.
Other central banks around the world are pursuing monetary policies similar to the U.S. Federal Reserve to boost domestic economic growth. The U.S. has held its target interest rate at a record low zero to 0.25% since December 2008 and spent $2.3 trillion purchasing Treasury and mortgage-related debt from 2008 to 2011 in the first two rounds of quantitative easing. The Fed buying this year has been divided between $40 billion a month of mortgage-backed securities and $45 billion a month of Treasury securities.
The European Central Bank last week cut its key interest rate to a record low 0.5% from 0.75%. Australia cut borrowing costs to a record this week and India and South Korea trimmed borrowing costs this month. The Bank of Japan on April 4 announced it would double monthly bond purchases.
The Total Return fund returned 6.74% over the past year, beating 90% of its peers, according to data compiled by Bloomberg. It returned 0.27% in the past month, beating 54% of its peers.
The 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 $2.04 trillion in assets as of March 31.