Pimco lightens up on U.S. debt

Investment managers at the fourth branch of the Federal Government, otherwise known as Pacific Investment Management Co. or Pimco, have reduced their exposure to government debt in anticipation of rising interest rates. This Bloomberg report has the details:

Bill Gross, who runs the world’s biggest bond fund, cut government debt holdings and boosted cash to the most since Lehman Brothers Holdings Inc. collapsed in 2008 amid increasing speculation that interest rates will rise.

Gross, who manages the $199.4 billion Total Return Fund at Pacific Investment Management Co., increased cash to 7 percent in November from negative 7 percent in October, according to Pimco’s Web site. The fund can have a so-called negative position by using derivatives, futures or by shorting. He reduced government-related securities to 51 percent from a five-year high of 63 percent in October.
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Gross also cut holdings of mortgage securities to 12 percent, the lowest since Pimco’s figures started in 2000, from 16 percent, according to the Web site.

Gross told CNBC on Dec. 7 that Treasuries are overvalued compared to potential inflation.

The folks at Pimco are generally early on calls like this, but they're almost always right (remember how they pleaded for Bernanke to cut rates in 2008-2009?) all the more reason to lighten up on both Treasuries and the modern day equivalent - mortgage backed securities.