US Dollar Collapse: Gold and Silver: Pimco cuts US Treasuries holdings to zero tnr.v, grc.to, rvm.to, asm.v, btt.v, gbn.v, ktn.v, laq.v, ngq.to, sgc.v, max.v, alk.ax, abn.b, ura.v, bva.v, bvg.v, slw, mgn, epz.v, fst.v,

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FT:

Pimco cuts US Treasuries holdings to zero

By Dan McCrum and Michael Mackenzie in New York

Published: March 9 2011

The world’s biggest bond fund has cut its holdings of US government-related debt to zero for the first time since early 2008 in the latest sign of increasing investor expectations of rising interest rates.

The move by the $237bn PimcoTotal Return fund follows warnings by its fund manager Bill Gross of rising bond yields as the US Federal Reserve nears the end of its massive bond buying programme, known as quantitative easing, or QE2.

Mr Gross, one of the most influential figures in bond markets, said in his March investment outlook that Pimco estimated the Fed has been buying 70 per cent of annualised issuance of Treasuries since QE2 began – a programme he last year likened to a Ponzi scheme.

Meanwhile, foreign investors have been buying the remaining 30 per cent. Mr Gross said as a result there was a risk of a temporary void in demand once QE2 is scheduled to end in June.

“Yields may have to go higher, maybe even much higher to attract buying interest,” he said.

The Federal Reserve is buying some $100bn of Treasuries each month and since November has purchased $412bn of government debt under QE2. By the end of June, the Fed is expected to have purchased around $800bn of Treasuries, pushing its total holdings to $1,600bn

After slashing its government- related holdings to zero, Pimco Total Return’s assets are primarily in US mortgages, corporate bonds, high yield and emerging market debt.

The fund holds 23 per cent of its assets in net cash equivalents, defined as any instrument that has a low sensitivity to movements in interest rates. The move was first reported by the Zero Hedge website.

The fund is the best performer in its category over the past 15 years, according to Morningstar. Mr Gross also has track record of making high-profile calls on markets. In 2007, when bond yields were rising, Mr Gross forecast housing would lead the economy into recession and send bond yields into reverse.

Last year, he controversially described the UK gilt market as “resting on a bed of nitroglycerine” due to the scale of the nation’s debts.

He later told the Financial Times his assertion was always meant to be directed at the pound, not gilts, and that he mellowed his views after the government’s austerity programme to cut spending.

“I would change it from nitroglycerine to dynamite,” he said.

The positioning by Pimco’s best-known fund follows a drop to 12 per cent of assets held in government-related debt in January, from as much as 63 per cent in late 2009.

The fund has returned 7.23 per cent in the past year, beating 85 per cent of its peers, according to data compiled by Bloomberg. It gained 1.39 per cent over the past month."

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