Pimco Boosts U.S. Government Assets and Today’s Other Top Stories

Pimco’s Total Return Fund increased holdings of U.S. government-related debt and mortgage-backed securities in December, while virtually abandoning its holdings of developed countries’ government bonds denominated in foreign currencies.

At the end of December, U.S. government-related holdings accounted for 43.19%, compared with 37% at the end of November and 35% at the end of October, according to data available Wednesday afternoon on Pacific Investment Management Co.’s website.

The funds U.S. government-related holdings include Treasury bonds, Treasury inflation-protected securities, Treasury futures and derivatives linked to U.S. government debt securities.

While holdings of mortgage-backed bonds climbed slightly to 25.43%, compared with 23% at the end of November and 22% at the end of October. The fund’s emerging-market holdings rose to 17.67% at the end of December, from 16% at the end of November.

In contrast, holdings in developed countries other than the U.S., which include sovereign debt sold by eurozone countries, the U.K. and Canada, tumbled to 0.07% at the end of December, compared with 12% at the end of October.

During December Total Return Fund posted a loss of 0.48%, underperforming the benchmark Barclays U.S. Aggregate Bond Index, which gained 0.09%, according to data from Morningstar.

For the year the fund posted a total return—including price changes and interest payments—of 4.69%, trailing the 5.97% return from the index.


Todays Other Top Stories

Learn Bonds

Learn Bonds: – Interest rates fall as inflationary expectations decline. – Interest rates fell again this week and I am still trying to figure out what is going on in the bond market. This time around the yield on the Treasury note is coming down. The recent high was achieved on January 2, 2013 when the yield closed at 3.00 percent. In early 2012, the yield on the 10-year was falling. On May 9 2012, the yield dropped through 1.85 percent to close at 1.81 percent. What’s different? Is there anything we can take away from the earlier dive in interest rates to the July 25 low that might help us understand what is going on now?


Municipal Bonds

WSJ: – Don’t let muni-bond markups sap your returns. – (Subscription) Investors seeking to buy municipal bonds should watch out for the markups that plague the market for debt sold by U.S. cities, states and other public entities.

Bond Buyer: – Why so many big bankruptcies? – For the municipal bond industry, 2015 marks the midpoint in what may turn out to be the decade of the bankruptcy.

ETF Trends: – Diversify with a cheap, broad munis bond ETF. – Fixed-income investors may be paying more than necessary when purchasing individual municipal debt securities. On the other hand, people can use munis exchange traded funds for a cheap way to access the market.

Bloomberg: – Cuomo said to plan $1.5 billion for cities from bank settlements. – Governor Andrew Cuomo will detail a plan to provide struggling cities in New York with $1.5 billion from legal settlements with financial firms.


Bond Market

BlackRock: – Bond market surprises and lessons learned. – While interest rate movements in 2014 may not have aligned with expectations, Matt Tucker provides some key takeaways investors need to know.

AllianceBernstein: – What did we learn about bonds in 2014? – After a less-than-stellar 2013 for bonds, many investors were ready to turn their backs on the asset class. But many didn’t—and were rewarded for their long-term perspective.

Chicago Tribune: – No relief as shrinking repo leaves bonds exposed. – Bond investors are bracing for another year of reduced liquidity and the potential for violent swings as a key part of U.S. debt markets that expedites trading of everything from Treasuries to junk bonds shrinks further.

Gary Gordon: – How long before ‘they’re raising rates’ to ‘they’re considering QE4?’ – If foreign economic stagnation and commodity price depreciation is an old story, then why are U.S. equities suddenly responding as though the U.S. economy might be in danger?


Treasury Bonds

CNBC: – Bond rally cools after Beige Book, weak auction. – U.S. Treasury prices pared some gains on Wednesday after the government’s auction of 30-year bonds and the release of the Fed’s monthly Beige Book report on business activity.

Reuters: – U.S. sells 30-year bonds at record-low yield. –  The U.S. Treasury Department on Wednesday sold $13 billion of 30-year bonds at a yield of 2.430 percent, the lowest ever at an auction, on strong demand for long-dated U.S. government debt due to worries about weak global growth.

Bloomberg: – Mortgage bonds in worst start against Treasuries in 18 years. – Government-backed U.S. mortgage bonds are off to their worst start to a year relative to Treasuries since at least 1997 as investors in the $5.5 trillion market brace for a surge in homeowner refinancing.

WSJ: – Low inflation bad for TIPS? nope. – Last week, Jason Zweig offered a tip to buy more TIPS.  The drop in prices of these Treasury inflation-protected securities has left them at reasonable levels, he suggested, and they are designed to become more valuable when inflation heats up. While TIPS indeed provide some protection against inflation, investors will actually make more if inflation is low.  Allow me to explain.


Investment Grade Bonds

Bloomberg: – Treasury rally prolongs company long-bond boon. – Corporate borrowers in the U.S. have boosted the average maturity of their bonds to the most since at least the 1990s as borrowing costs slump, reducing the risk that they will be exposed to a sudden rise in interest rates.


High Yield Bonds

Market Realist: – Junk bond yields are high, but beware of the caveat. – So what are the considerations for investing in high yield bonds? The obvious attraction is yield, particularly for income seeking investors battling with a prolonged low interest rate environment. However, it’s important to note that this yield comes at a price – namely, higher credit risk than most fixed income securities, and therefore a higher risk of default.  It’s this perilous reputation that earned them the moniker “junk” bonds.

Money Marketing: – F&C’s Paul Niven to scale down global high yield position. – Uncertainty regarding the timing of interest rate hikes by the US Federal Reserve has convinced F&C’s head of multi asset Paul Niven to move his global high yield position from overweight to neutral.


Emerging Market Bonds

FT: – Investors turn to Mexico bonds for yield. – Investors have been flocking to Mexican government bonds, pushing yields on some of the country’s long-term debt to the lowest since 2013 as US Treasury yields fall and the country’s economic prospects brighten on the back of a U.S. recovery.



Artemis: – ILS & cat bond rates & excess return declined at slower pace in 2014. – While both the average rate-on-line and the excess return of insurance-linked securities (ILS) and catastrophe bonds declined considerably in 2014, it was at a slower rate than that seen in 2013, according to the latest report from Lane Financial.


Green Bonds

Money Management: – Corporate and municipal sectors drive green bond explosion. – Rapid growth in the green bond sector continued in 2014, with US$36.6 billion worth of bonds issued — more than triple the value of the 2013 issuance.


Investment Strategy

ETF Trends: – Where defined-maturity ETFs fit into a fixed-income portfolio. – Fixed-income investors who are adhering to a specific investment timeline can utilize target-maturity exchange traded funds to meet their goals.

Professional Adviser: – Everyone’s talking about… Bonds. – In the fourth part of our series looking at the most topical investment themes for the quarter ahead, Professional Adviser asks multi-managers: with yields nearing negative territory, are bonds ‘uninvestable’?


Bond Funds

Stock Traders Daily: – The bond market is telling you something. – Market declines are one thing, but when the bond market is telling you something you definitely should listen. The bond market is largely comprised of much smarter investors, their time horizon and their diligence surpasses the objective of most stock market investors, and that is usually where you find big money. When big money is talking to you they do it with their pocketbooks, and when there is a vocal as they are today you better open up your ears.

WSJ: – Pimco total return fund boosted U.S. fixed-income assets in December. – (Subscription) Pimco’s Total Return Fund increased holdings of U.S. government-related debt and mortgage-backed securities in December amid strong global demand for U.S. fixed-income assets.

Bloomberg: – Flexible bond funds flop as rate drop stings top sellers. – The new generation of bond funds just can’t keep up with your parents’ investments.

Deal Book: – BlackRock’s profit slips despite strong flows into its funds. – BlackRock, the world’s largest money manager, continued to benefit from strong investor inflows in the fourth quarter, although the company’s growth was down slightly compared with results in the period a year earlier.


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