Pacific Investment Management Co’s (PIMCO) Total Return Fund, the world’s biggest actively run debt fund, is trimming its bet on bonds.
Total Return cut the duration of its holdings to 5.27 years as of Aug. 31 from 5.44 years at the end of July, based on data on the company Web site. It was the lowest level since May. It also reduced its holdings of US government bonds and related securities last month.
US 10-year yields rose on Monday to the highest level since June on speculation the US Federal Reserve would raise interest rates before the end of the year.
Photo: AFP
“It’s time for the central bank to move,” JPMorgan Chase & Co chief executive Jamie Dimon said.
DoubleLine Capital LP chief investment officer Jeffrey Gundlach said investors should prepare for rising interest rates.
The US planned to auction US$12 billion of 30-year bonds yesterday.
“Let’s just raise rates,” Dimon said on Monday at the Economic Club of Washington. “The Fed has to maintain credibility. I think it’s time to raise rates. Normality is a good thing, not a bad thing. The return to normal is a good thing.”
The 10-year yield fell one basis point to 1.65 percent at 6:47am yesterday in London, according to Bloomberg Bond Trader data.
The price of the 1.5 percent security due in August 2026 rose US$0.63 per US$1,000 face value.
The Fed cut its benchmark to almost zero about eight years ago, raising the target only once since then to a range of 0.25 percent to 0.5 percent in December last year. In the two decades prior to the December 2008 reduction, the rate averaged about 3.5 percent.
Total Return Fund trimmed its holdings of US government and related debt to about 43 percent of assets from about 46 percent, based on the Web site data.
PIMCO is “continuing to reduce” its Treasury holdings, said Scott Mather, one of the three managers of the Total Return Fund, which has US$85.8 billion in assets and is based in Newport Beach, California.
The firm sees value in inflation-linked debt and mortgage bonds, he said on Bloomberg Television on Aug. 29.
The fund’s stake in government securities can include Treasuries and related investments such as inflation-protected bonds, futures contracts and agency debt, PIMCO said.
Gundlach said in a Web cast last week fixed-income investors should reduce the duration of their positions and move money into cash.
Duration is a measure of a bond’s sensitivity to changes in yield and a smaller figure indicates a more bearish position.
“This is a big, big moment,” Gundlach said. “Interest rates have bottomed. They may not rise in the near term as I’ve talked about for years, but I think it’s the beginning of something and you’re supposed to be defensive.”
Federal Reserve Governor Lael Brainard on Monday said there is no rush to raise rates. Federal Bank of Atlanta President Dennis Lockhart repeated on Monday his call for a “serious discussion” about raising interest rates this month. His counterpart in Boston, Eric Rosengren, argued last week there was a reasonable case for gradual tightening.
Futures contracts indicate a 22 percent chance the central bank would raise rates when it meets next week and a 57 percent probability of a move by December, according to data compiled by Bloomberg.
Those odds make rising yields increasingly attractive, said Roger Bridges, the chief global strategist for interest rates and currencies at Nikko Asset Management Co’s Australian unit in Sydney, which has about US$16 billion in assets.
Treasuries are “even better value for investors particularly with the Fed likely to remain on hold,” Bridges said.
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