Pimco boosts govern­ment debt as trea­suries rally to top place

The Pak Banker - - COMPANIES/BOSS -

The Pimco To­tal Re­turn Fund boosted its hold­ings of U.S. govern­ment and re­lated debt while a rush for the safest se­cu­ri­ties sent Trea­suries surg­ing to the No. 1 spot 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 have 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 1.71 per­cent, com­pared with 0.005 per­cent in Ja­pan and 0.23 per­cent in Ger­many. Yields have 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.

"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 fell one ba­sis point Wed­nes­day as of 7:05 a.m. in Lon­don, ac­cord­ing to Bloomberg Bond Trader data. The price of the 2.25 per­cent se­cu­rity due in Novem­ber 2025 rose 3/32, or 94 cents per $1,000 face amount, to 104 25/32.

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, the data show. 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. 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 start- ing 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 215 ba­sis points more than Trea­suries, the big­gest pre­mium since June 2012, based on Bank of Amer­ica Corp. data. The dif­fer­ence is ap­proach­ing the widest since the last re­ces­sion in 2008 and 2009. It was as wide as 622 ba­sis points in De­cem­ber 2008.

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