(March 3) – “In the $14.7 trillion bond market, Bill Gross, who manages $90 billion directly for Pacific Investment Management Co., is the big name — and he has a track record for being right. So it is not surprising that he is getting credit for realizing the impact that the Treasury’s plan to buy back long-term government debt would have on the bond market. He seized the opportunity in late January and early February, and his voracious buying of long-term Treasuries for 21 trading days sent tremors through the bond market and earned Pimco’s clients money,” writes Jonathan Fuerbringer in The New York Times.
“But a closer look shows — and Gross admits — that he did not do nearly as well as he should have. He did not begin to buy his $8 billion of long-term Treasury bonds, bond futures and zero coupon bonds until Jan. 20. That was a full week after the Treasury said it would buy back up to $30 billion in long-term debt this year. And it was six months after it became clear the government would have to make such purchases as the federal budget surplus allowed it to pay off billions of dollars of the publicly held government debt.
“‘I should have been shifting to that strategy long before January,’ Gross said last week in an interview in the partners’ retreat at Pimco’s headquarters here. He acknowledged that he had even recommended buying Treasuries in a newspaper article back in August, but failed to take his own advice. ‘Why it took so long for me, or us, I have no idea.’
“To make matters worse, Gross passed up adding to his Treasury bond cache at the Treasury auction Feb. 10 because he thought the bonds were too expensive, compared with the 10-year note at the time. ‘We should not have passed,’ he says now.
And in early January, Gross adjusted a derivative-based options bet on long-term interest rates, expecting them to remain over 6.30 percent. But the sudden 30-year bond rally turned that into a mistake.
“‘I would love to tell you that Pimco made a coup, that we had made millions of bucks and put that in a headline,’ he said. But that is not the case. Instead, he says: ‘We haven’t had a great offensive year but we played a pretty good defense. It could have been a Pimco disaster, but it wasn’t.’
“Even after all this, his flagship mutual fund, the $30 billion Total Return Fund, is not positioned the way he wants, because he still has too few long-term Treasury securities — the current winners — and too many mortgage-backed securities and corporate bonds — the current losers. This just shows how hard it is to change a strategy quickly when a fund is so big. And it underscores the premium on acting as early as possible.