Bill Gross, the manager of the world's largest bond fund, bulked up his stake in non-U.S. debt in May and persisted in his resistance toward Treasuries despite their rally on a torrent of weak economic data.
According to PIMCO's website on Thursday, Gross' $234 billion Total Return Fund
Gross, who also helps oversee over $1.2 trillion in assets as co-chief investment officer at Pacific Investment Management Co., gingerly stepped up his exposure in Treasuries in May, holding 5 percent compared with 4 percent in April.
But Gross continues to be bearish on the United States.
As of May 31, Gross' Total Return fund held a negative 9 percent short position in a new investment category referred to as liquid rates, which will include U.S. dollar-denominated interest-rate swaps, swaptions, options, and other derivatives. That position was unchanged from April.
The latest data makes it appear as if the fund's total short position is 9 percent -- up from the previously reported short position of 4 percent, but that could not be confirmed with PIMCO and cannot be determined by looking at the data provided.
PIMCO's money market and cash equivalents exposure dropped slightly to 35 percent as of May 31 from 37 percent as of the end of April. Gross also decreased his position in mortgages in May to 21 percent from 24 percent.
PIMCO's representatives declined further comment.
Gross' move to ratchet up his bearishness in March by taking his initial short position in U.S. government-related debt has been the subject of market criticism, given the furious rally in U.S. Treasuries.
The debt was categorized as Treasuries, TIPS, agencies, interest-rate swaps, Treasury futures and options and FDIC-guaranteed corporate securities. But the Total Return fund, as illustrated, has not been short in those U.S. government securities.
Last week, a source familiar with the matter told Reuters that Gross is not short Treasuries, but swaps. Swaps are an agreement between two parties to receive a fixed rate of interest and pay a floating rate (three-month LIBOR).
When an investor shorts a swap, he agrees to pay a fixed rate in exchange for a floating rate, which is just the reverse. To put it simply, he is selling a bond betting that yields will rise.
Gross told Reuters in early May that the only way he would purchase Treasuries in a big way again is if the United States heads into another recession.
Last week, the yield on the benchmark 10-year Treasury note fell below 3 percent, the first time since December, on further evidence the economic recovery is losing momentum -- and fast.
The 10-year's yield closed at 2.99 percent on Thursday.
He said: Treasury yields are currently yielding substantially less than historical averages when compared with inflation. Perhaps the only justification for a further rally would be weak economic growth or a future recession that substantially lowered inflation and inflationary expectations.
Gross' fund is up 3.38 percent so far this year, outperforming 52 percent of his peers, according to Lipper as of May 31 data. Year to date through June 8, his fund is up 3.37 percent, outperforming 42 percent of his peers, Lipper added.
(Reporting by Jennifer Ablan; Editing by Kenneth Barry)