Major bond fund dumps US government securities

Suzanne Walker at Bloomberg reports that Bill Gross, fund manager at the Pacific Investment Management Company (PIMCO, symbol PTTRX), has reduced the company's holdings of government-related debt to zero. PIMCO is the world's largest bond fund.

Yields on Treasuries may be too low to sustain demand for U.S. government debt as the Federal Reserve approaches the end of its second round of quantitative easing, Gross wrote in a monthly investment outlook posted on Pimco’s website on March 2. Gross mentioned that Pimco may be a buyer of Treasuries if yields rise to attractive levels.

Treasury yields are about 150 basis points too low when viewed on a historical context and when compared with expected nominal gross domestic product growth of 5 percent, he wrote in the commentary. The Fed is scheduled to complete purchases of $600 billion of Treasuries in June.

US Government bonds are unattractive because their interest rates are zero to 0.25% at the same time as the Federal Reserve Bank is clearly promoting an inflationary policy, which is conservatively estimated in the private sector to be 3% or more. Thus, the bonds are losing money for their holders. Mr. Gross recommends making bond investments in the developing world, which are likely to produce a higher return.

PIMCO returned 7.23% to its investors in the last year -- better than 85% of its competitors. The fund managed $1.24 trillion in assets in December 2010.

Virtual buckeye to the National Inflation Association.