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US Treasurys Dumped, Pimco Sees Value In Emerging-Market Bonds

March 11, 2011

wsj.com

NEW YORK (Dow Jones)–The valuations on U.S. Treasurys are not attractive in a historical context and Pacific Investment Management Co. is moving money toward emerging-market debt, said the fund’s founder Bill Gross in an interview on Thursday with CNBC.

Reports came out on Thursday that the bond-fund giant had dumped all of its holdings of U.S. government bonds. Gross said better valuations can be found elsewhere, where yields are not artificially boost by Federal Reserve purchasing.

“The overvaluation [in Treasurys] has been dependent on the purchasing power of the Fed,” said Gross, who does not believe there will be a third round of “quantitative easing.”

Pimco did not participate in Thursday’s 30-year auction nor Wednesday’s 10-year auction, Gross said, though both were considered well-received.

The fund still owns about $20 billion to $30 billion in Treasury bills, with maturities under 12 months. According to Pimco’s website, Treasurys maturing in less than 12 months in the Total Return Fund are not classified in the U.S. government-related holdings. Rather, they are considered cash equivalent and is part of the cash holdings.

“It’s not a question of dissing the United States or questioning the credit of the United States,” Gross said, “but simply a maturity reflection” that longer-term bonds are mispriced.

Gross, who is also co-chief investment officer at Pimco, said the fund likes corporate and emerging-market debt, the latter of which he said are not overvalued by Fed purchases. The fund is moving money toward Mexico and Brazil, and even Spain at the margin, which books a healthier balance sheet than the U.S., he said.

“Are these bonds as safe as Treasurys? No,” Gross said, “but they’re not overvalued based upon quantitative procedures that we’ve seen in the past 12 months.”

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