Pimco beefs up exposure to mortgages

THE PIMCO Total Return Fund, the world’s largest bond fund, increased its exposure to mortgages in September and showed a dramatic drop in cash equivalents and money market securities for the same period, according to its website yesterday.

Pacific Investment Management Co, which has $1.3 trillion in assets under management, increased exposure to mortgages in September to 38 per cent from 32 per cent in August.

And while the fund’s exposure to the US Treasury market remained steady at 16 per cent for the second month, the holding marks a big departure from Pimco’s exit from the market at the start of the year on fears of inflation eroding the value of bonds.

In late August, Pimco co-chief investment officer and Total Return Fund manager Bill Gross said the precipitous decline in Treasury yields reflected a high probability of recession. The yield on the benchmark 10-year US Treasury note then dropped below two per cent to 1.98 per cent in the wake of the Fed’s Operation Twist.

Yesterday, the 10-year yield stood at 2.16 per cent.

Equally noticeable was the Total Return Fund’s dramatic drop in cash equivalents and money market securities of negative 19 per cent in September from negative nine per cent in August, the fund’s website showed.

Meanwhile, Pimco’s head of global equities said yesterday that while the global outlook remains very volatile, the firm is not counting on the Eurozone collapsing.

“I personally think the [European Central Bank] will end up putting a lot more sovereign debt on its balance sheet,” said Neel Kashkari. “Not because it wants to, but because it has no choice. Whether they expand the EFSF or not, the ECB is the back-up ... They hate it, but that is what they are, just like the Federal Reserve was in the US.”