Podcast Center
Video Center
Webcasts
Resource Center
Events
March 10, 2011 at 01:06 PM
Don't believe everything you hear, especially if what you've heard is that PIMCO's Bill Gross has wiped the PIMCO Total Return Bond Fund of Treasuries. As Eric Jacobson, director of fixed-income research for Morningstar, said in an interview with Morningstar's Jason Stipp on Wednesday, "News started to roll around the market that he had been completely sold out of Treasuries, and lot of people took that to mean that he was so determined to avoid them that he had literally wiped them out of the portfolio, which isn’t exactly true."
What is true, Jacobson said, is that the portfolio has about 3% exposure to TIPS and agency bonds, or 6% total market value, but uses swaps that move in the opposite direction to counter interest rate risk. "So if you just look at the totals, it looks like zero, but in fact it’s broken up with a couple of parts," Jacobson said.
The difference between a portfolio with no government securities and one with zero market exposure, according to Jacobson, is that "in theory agency bonds don’t have to move exactly with Treasuries."
"As a percent of duration," he continued, "government-related securities are actually minus 14% in this portfolio at the end of February," reflecting Gross's negative sentiment on Treasuries. Furthermore, "when you look at the overall interest rate sensitivity in the portfolio, it's almost about 24% shorter than the Barclays Aggregate benchmark that everybody uses."
