Pacific Investment Management Co.’s Total Return Fund increased its holdings of U.S. government and related debt as Treasuries surged along with bonds around the world.
The Total Return Fund boosted its stake to 36.42% of assets in May from 35.86% in April, according to data on the company’s website. The figure is within 1 percentage point of a 16-month high set in March. Total Return, based in Newport Beach, California, is the world’s biggest actively run bond fund with $86.1 billion in assets.
Bonds are surging globally as investors seek safety following a smaller-than-expected U.S. employment gain for in May and as British voters decide whether to leave the European Union. Treasury 10-year note yields dropped Friday to the lowest level since February, while Japanese and German 10-year yields slid to all-time lows. The yield on the Bloomberg Global Developed Sovereign Bond Index declined to a record 0.6%.
“We will see lower yields,” said Toshifumi Sugimoto, chief investment officer in Tokyo at Capital Asset Management, who has 30 years of experience in the bond markets. “Countries all over the world are not doing well. Globally, bond markets are very strong.” Mr. Sugimoto said he’s buying government debt in the U.S., Australia and France.
Treasury 10-year yields dropped three basis points, or 0.03 percentage point, to 1.65% as of 6:36 a.m. New York time, according to Bloomberg Bond Trader data. That’s the lowest level since Feb. 24. The 1.625% security due in May 2026 rose 10/32, or $3.13 per $1,000 face amount, to 99 3/4. The yield has fallen five basis points this week and about 60 basis points this year.
For more on the record-setting rally in Japan’s bond market, click here.
Japan’s 10-year bond yield slid to minus 0.155% Friday, while Germany’s 10-year bund yield touched 0.02%.
The Bloomberg Global Developed Sovereign Bond Index has returned 10% in 2016, headed for its biggest gain in data starting in 2010.
The Washington-based World Bank on Tuesday cut its forecast for global economic growth this year to 2.4% from the 2.9% it estimated in January. Renewed concern over lackluster global growth started to emerge last week after a report showed the slowest pace of jobs growth in the U.S. in almost six years.
The chances of the Federal Reserve raising rates this month have fallen to zero from 22% a day before the Labor Department released the payrolls numbers, according to data based on fed fund futures compiled by Bloomberg.
Investors are also having to contend with the prospect of a British exit from the EU after the June 23 referendum, with polls suggesting the result is too close to call.
“Treasuries look set to remain well underpinned near-term as the Fed likely signals no early tightening at June’s meeting and uncertainty persists ahead of the EU referendum,” said Nick Stamenkovic, a strategist at broker RIA Capital Markets Ltd. in Edinburgh. Investors are “plumping for the safety of core government bonds.”
PIMCO's Total Return Fund also added to its holdings of mortgage debt, investment-grade bonds and high-yield securities, according to the website. It had a negative position in developed bonds outside the U.S., indicating a bearish view on the asset class.
The fund’s stake in government securities can include Treasuries and related investments such as inflation-protected bonds, futures contracts and agency debt, according to the PIMCO website.
Total Return has gained 3.2% this year, according to data compiled by Bloomberg. It ranked in the bottom quarter among its peers, the figures show.
