Pimco's Gross Boosts U.S. Treasury Bond Holdings

Bill Gross, manager of the world's biggest bond fund, boosted U.S. Treasury debt holdings to their highest level in more than a year in April when the safe-harbor market rallied.

The share of Treasury bonds in the $292.9 billion Total Return Fund (PTTRX) at Pacific Investment Management Co. was 27% at the end of April, its highest level since February 2012, compared to 21% at the end of March, according to the data released on the company's website Thursday afternoon.

Including 12% in Treasury inflation-protected securities, the overall Treasury debt holdings were 39%, up from 33% from a month ago.

For the first time in over a year, the share of Treasury bonds as a whole overtook mortgage-backed securities (MBS) as the largest holdings of Mr. Gross's bond fund.

Mr. Gross also slightly boosted the share of MBS to 34% in April, compared to 33% in March. He reduced holdings of investment-grade corporate debt to 7% from 9% in March, while cutting non-dollar sovereign bonds in developed nations--including those sold by euro zone countries--to 10% from 11%.

For months Mr. Gross only bought Treasury bonds maturing in five to seven years as he believed these notes continue to benefit from the Federal Reserve's purchases aiming to support the economy.

Mr. Gross had stayed away from 10-year and 30-year Treasurys, fretting that the central bank's monetary stimulus would drive up price pressure in coming years, which will erode the value of bonds.

But last month Mr. Gross said in an interview with the Wall Street Journal that he turned bullish on the benchmark 10-year notes.

The shift came as bond prices rallied sharply in April as worries over the U.S. economy reduced fears that the Federal Reserve would pull back from buying Treasury bonds during the second half of the year.

Mr. Gross said he has become positive, at least for now, due to the prospects that Japanese investors may pile into the Treasury bond market as the Bank of Japan is scooping up Japanese government debt.

"Treasurys are money good but not "good money." They are better than the alternative (cash) as long as central banks and dollar reserve countries (China, Japan) continue to participate," said Mr. Gross in his monthly investment outlook released last week.

Mr. Gross still avoids the 30-year Treasury bonds, a sign he is not completely abandoning his view that long-dated Treasury bonds are vulnerable to higher yields in coming years.

Mr. Gross's fund handed investors a return of 1.5% this year through Wednesday, beating the 0.6% of the Barclays U.S. Aggregate Bond Index, according to data from fund tracker Morningstar Inc.

Over the past 15 years, the fund has posted an average annualized return of 7.2%, compared to 5.9% from the benchmark index.

Mr. Gross is founder and co-chief investment officer at Pimco. Part of Allianz SE (ALV.XE, ALIZF), Pimco has over $2 trillion in assets under management.

Write to Min Zeng at [e-mail]

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