NEW YORK Oct 13 (Reuters) - Bill Gross, manager of the
world’s largest bond fund, ramped up buying of mortgage-backed
securities in September on the likelihood the Federal Reserve’s
reinvestment program in those securities will boost prices
significantly.Gross increased mortgage debt to 38 percent of assets in
his $242 billion PIMCO Total Return Fund in
September, from 32 percent in August, as the U.S. central bank
announced last month that it “will now reinvest principal
payments from its holdings of agency debt and agency
mortgage-backed securities in agency mortgage-backed
securities.”PIMCO’s latest bet on mortgages isn’t going unnoticed.Gross, who helps oversee $1.2 trillion as co-chief
investment officer at PIMCO, made headlines earlier this year
and came under heavy criticism when the manager widely known as
the “bond king” bet heavily against U.S. Treasuries — one of
the biggest outperformers of this year.His move into mortgage-backed securities also comes as the
PIMCO Total Return fund’s cash equivalents and money-market
securities fell to negative 19 percent September, from negative
9 percent in August.In having a so-called negative position in cash equivalents
and money-market securities, it is an indication of derivative
use and short-term securities being put up as collateral as a
way to boost leverage and increase the fund’s holdings in bonds
with longer maturities such as mortgage-backed securities,
Treasuries and corporate bonds, according to Eric Jacobson,
director of fixed-income research at Morningstar who has
covered PIMCO for more than a decade.Over the years, some analysts in the fixed-income world
have pointed out that Gross’ use of derivatives to boost
leverage and exposure to higher-yielding assets is what
distinguishes the Total Return Fund from an ordinary plain
vanilla bond fund.”One very basic thing to know, too, is that PIMCO
classifies anything with a duration of one year or shorter as
cash — regardless of sector,” Jacobson added.Jacobson said after careful examination of the PIMCO fund’s
effective duration of 7.14 years — about double over the last
six months — “it doesn’t necessarily mean PIMCO raised their
pure interest-rate risk to the United States. They didn’t
double down on Treasuries.”Rather, PIMCO took on “loose” interest rate risk to other
credit and government markets, he said, noting that the Total
Return fund increased exposure in non-U.S. developed and
emerging markets securities in September.Duration is a bond’s sensitivity to interest rate
fluctuations, and going longer duration is an investment
strategy when rates are expected to remain low or drop further
and vice versa.All told, the PIMCO Total Return fund’s bad call on
Treasuries earlier this year has cost it.It is up only 1.06 percent year to date versus the
benchmark BarCap U.S. Aggregate Index which is up 3.99 percent.
But on a three-year basis, the fund is up 10.14 percent against
the benchmark’s 9.36 percent returns. The fund has also held up
well over the last five years, with the fund up 7.80 percent
versus the BarCap’s 5.48 percent returns.
* Research in Motion scrambled to restore
service to millions of BlackBerry users around the world as the
company’s worst-ever outage vexed office workers, officials,
emergency responders and others who rely on the messaging
device.* People convicted of insider trading are facing
considerably harsher sentences than in the past, according to a
Wall Street Journal analysis.* Dow Jones & Co faced on Wednesday fresh scrutiny over an
alleged deal to boost the reported circulation numbers of The
Wall Street Journal Europe, in which the paper sold bulk copies
to a consulting firm and simultaneously directed money to the
firm for separate services.* Asian shares were mostly higher, with exporters leading
the charge in Tokyo while a strong Australian employment report
buoyed the Australian dollar. The Nikkei rose 1 percent.* The pay-phone business is shrinking rapidly, but that
hasn’t deterred Pacific Telemanagement Services, a little-known
California company that agreed earlier this month to buy nearly
all Verizon’s 50,000 remaining pay phones.* Apple Inc won a victory on Thursday in its global
patent battle with Samsung Electronics when a judge
in Australia upheld a temporary injunction blocking the South
Korean company from selling its Galaxy Tab 10.1 tablet computer
in the Pacific nation.* Slovakia’s largest opposition party, after a bit of
parliamentary gamesmanship, cleared the way Wednesday for the
country to endorse changes to the 440 billion euros ($600
billion) euro zone bailout fund that European political leaders
have deemed essential to the bloc’s efforts to beat back the
sovereign-debt crisis.* The cash-strapped apparel maker Liz Claiborne Inc
said Wednesday that it has agreed to let J.C. Penney Co
buy its namesake brand as the company looks to reduce its debt.* U.S. offshore-drilling officials issued their first
citations related to the Deepwater Horizon oil spill Wednesday,
accusing BP Plc and two of its contractors of breaking
several rules. While citations against BP were widely expected,
the government’s decision to pursue the contractors Transocean
Ltd and Halliburton Co for infractions jolted
the contracting industry, which traditionally avoids liability
in such accidents.
* Pepsi gains after profit tops view* Futures up: Dow 105 pts, S&P 8.2 pts, Nasdaq 22.25 ptsBy Chuck MikolajczakNEW YORK, Oct 12 (Reuters) - U.S. stock index futures rose
on Wednesday, putting the benchmark S&P 500 on track for its
sixth day of gains in the past seven, as Slovakia moved to
reach a deal on expanding the euro zone rescue fund.Slovakia’s political parties will hold talks later
Wednesday to come up with a deal after lawmakers rejected a
plan to bolster the European Financial Stability Facility fund.
Slovakia is the last country in the 17-member currency zone
left to approve the plan.German Chancellor Angela Merkel weighed in, saying she
expected full ratification by the European Union summit on Oct.
23.”The big fear in the market has been a stumbling block to
the European recapitalization of the banks and the problems in
Greece, and while there certainly is no clear solution, the
fact remains they probably bought themselves a few more weeks
time to come to a solution,” said Rick Meckler, president of
LibertyView Capital Management in New York.”You have a combination of investors who have been short,
not wanting to be short into earnings and investors who have
been on the sidelines being pulled back in by this upward
momentum to the market.”S&P 500 futures rose 8.2 points and were above fair
value, a formula that evaluates pricing by taking into account
interest rates, dividends and time to expiration on the
contract. Dow Jones industrial average futures climbed
105 points, and Nasdaq 100 futures gained 22.25 points.Alcoa Inc shares fell 2.7 percent to $10.02 in
premarket trade a day after the largest U.S. aluminum producer
said third-quarter profit was lower than the second quarter and
fell short of already-reduced expectations due to a slump in
global metal prices.PepsiCo Inc rose 1.2 percent to $61.70 premarket
after the soft drink and snacks maker reported slightly
better-than-expected quarterly earnings, helped by
international growth and the acquisition of a Russian beverage
company, and affirmed its full-year target.Investors will also keep an eye on the Federal Open Market
Committee’s minutes from its Sept. 20-21 meeting, to be
released at 2 p.m. EDT. (1800 GMT)Research In Motion Ltd may be active after
millions of BlackBerry smartphone customers across four
continents were without email, messaging and browsing service
after a series of failures in its private network.European shares rose 0.7 percent and hit their highest in
more than five weeks, with mining stocks among the biggest
winners, helped by higher metals prices and
better-than-expected economic data.A rebound in Chinese shares helped lift most Asian stocks
into positive territory, but advances were limited by concerns
that corporate earnings would be weighed down by the fallout
from Europe’s debt crisis.U.S. stocks took a breather on Tuesday after the best five
days for the S&P 500 in more than two years as investors looked
to earnings for a reason to extend a market rebound.
* India’s diversified Essar Group, with businesses ranging
from shipping to power, is considering listing its
infrastructure assets in London to raise about $750 million,
Bloomberg and Press Trust of India news agency reported quoting
sources.
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