PIMCO's Bill Gross Cashes in U.S. Treasurys. What Should the Rest of Us Do?

Mar. 13, 2011 4:52 AM ETIEF, TLH, TLT, IEI9 Comments
John Tobey, CFA profile picture
John Tobey, CFA

$20 billIt’s official. Bill Gross is divorced from the U.S. Treasury. The PIMCO Total Return Fund, the largest U.S. mutual fund at about one-quarter trillion dollars, now holds no U.S. Government securities.

What’s up? Is the U.S. about to be downgraded? Is it bankrupt? Or is this a political thing?
None of the above, according to Gross:

"It's not a question of dissing the United States or questioning the credit of the United States, but simply a maturity reflection," Gross said. Treasurys are "mispriced [too high, meaning yields are too low] relative to the inflationary environment and the growth we see ahead and there are better alternatives in order to capture yield.”

This is a remarkable turnabout from last July, when Gross was fearful of deflation and no growth. At the time, he was stockpiling U.S. Government bonds. For example, Bill’s comment in an interview last July:

Treasurys are fairly valued, considering the low expected inflation and slow growth ahead. Investors are finding it hard to get used to such a low yield. But they're going to find it hard to get used to the slow growth -- or what we at Pimco call the ‘new normal’ -- throughout the economy. In that context, a 3.1% yield is okay. It's a milquetoast valuation.

(CNNMoney.com. “What the bond guru sees coming,” July 22, 2010)
Last year, the percentage of fund assets in U.S. Government securities was 51% in May and 63% in June. Today, it is 0%.
Bill is a troubled soul, yet makes astute investment decisions
In PIMCO’s monthly Investment Outlook, you can read both Bill’s investment thinking and his emotional angst. He has been bothered by many things that have gone on and are going on. And yet, he has directed the

This article was written by

John Tobey, CFA profile picture
I am the founder and editor of Investment Directions. My career has been managing and consulting to multi-billion dollar funds. Using the widely accepted “multi-manager” approach, I have worked with top investment managers throughout the country, gaining a high level of expertise. My career has spanned many market environments, and I have hands-on experience searching out opportunities and avoiding risks in all of them. I now devote my time to Investment Directions, with the goal of helping investors further their understanding and improve their investing skills. I am currently serving on: The AAUW Investment Advisers Committee and The City of Vista Investment Advisory Committee.

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