Why Pimco is Fleeing From Mortgage Debt Into Government Debt

Pacific Investment Management Co (Pimco) has made its most substantial change in bond holdings since 2004. Its nearly $200 billion Total Return Fund has lowered its mortgage debt holding from 22 to 16 percent of its portfolio. At the same time, it’s increased its government debt — including Treasuries, agency debt, interest-rate derivatives, and FDIC-backed bank debt — from 48 to 63 percent of its portfolio. The mortgage and government debt holdings are at a five-year low and high, respectively, as percentages of its portfolio.

According to Bloomberg, the co-CIO & founder of Pimco, Bill Gross, “said in his December investment outlook last week that the ‘systemic risk’ of new asset bubbles is rising with the Federal Reserve keeping interest rates at record lows. Under what Pimco has termed the ‘new normal,’ investors should be prepared for lower-than-average historical returns with heightened government regulation, lower consumption, slower growth and a shrinking global role for the US economy.”

Apparently, at least in the near term, Gross has faith that the US government will continue to honor its debt. It sounds like a bold move. More details are available from Bloomberg in its coverage of Pimco’s Gross increasing his government debt holdings to its highest level in five years.