PIMCO's Gross Boosts U.S. Bond Holdings

By Joseph Lazzaro | July 13 2011 11:45 AM

Bill Gross isn't bearish on the U.S. Government. Not if you look at his bond purchases.

REUTERS/Kacper Pempel

The U.S. Government - still a pretty good investment, according to one noted bond fund manager.

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Gross, the head of world's largest bond fund, Pacific Investment Managment Co., or PIMCO, increased its holdings of U.S. Treasury bonds, commonly called Treasuries, last month while simultaneously cutting money-market securities.

Gross boosted the U.S. Government securities portion of his Total Return Fund to 8 percent in June from 5 percent in May. The fund has about $243 billion in assets, Bloomberg News reported Wednesday. Holdings of developed world bonds outside the U.S. increased to 13 percent from 10 percent. Cash and cash equivalent holdings dropped to 29 percent from 35 percent.

World of PIMCO's action -- considering a tad late by others who invested in bonds earlier, capturing this year's bond market rally -- occurred on a day when U.S. Federal Reserve Chairman Ben Bernanke hinted that the Fed may deploy a third phase of its quantitative easing program, or QE3, if the tepid U.S. economic recovery does not accelerate.

However, Bernanke was careful to underscore that the Fed remains ready to take a reverse action -- to tighten monetary policy -- if inflation rises to unacceptable levels and/or if the U.S. economic growth becomes too strong.

Bond Market Analysis: Absent an interest rate increase by the Fed, Gross' move will probably be a prudent one. In addition, Gross' bond purchase of U.S. securities should put the national debt nay-sayers to rest: the head of the world's largest bond fund still has confidence in the debt repayment capabilities of the U.S. Government.