(Bloomberg News) Pacific Investment Management Co.'s Bill Gross increased his holdings of Treasuries to the highest level since July 2010, while billionaire investor Warren Buffett called them "dangerous."
Gross boosted U.S. government and Treasury debt to 38 percent of assets in Pimco's $250.5 billion Total Return Fund, the world's biggest bond fund. The position in January climbed from 30 percent in December, according to a report on the company's website yesterday.
Buffett, the chairman of Berkshire Hathaway Inc., said taxes and inflation should dissuade investors from debt. That puts him in the camp with Laurence D. Fink, chief executive officer of BlackRock Inc., the world's largest money manager, who said this week investors should have 100 percent of their holdings in equities because they offer higher returns than bonds.
"They are among the most dangerous of assets," Buffett said yesterday in an adaptation of his annual letter to shareholders on Fortune magazine's website. "Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal."
U.S. 10-year yields fell four basis points, or 0.04 percentage point, to 1.99 percent as of 9:51 a.m. in New York, according to Bloomberg Bond Trader prices. They set a record low of 1.67 percent on Sept. 23.
The difference between 10-year rates and the annual increase in consumer costs, known as the real yield, was negative 1.01 percent. The shortfall was as much as negative 2.14 percent in October, which was the most since 1980.
"Bonds should come with a warning label," wrote Buffett, who is based in Omaha, Nebraska.
Berkshire still holds "significant amounts" of debt, mostly short-term securities, according to the investor letter.
"At Berkshire the need for ample liquidity occupies center stage and will never be slighted, however inadequate rates may be," he wrote. "We primarily hold U.S. Treasury bills, the only investment that can be counted on for liquidity under the most chaotic of economic conditions."
Gross, based in Newport Beach, California, has also addressed negative real yields, calling them a form of "financial repression" in his investment outlook released last month.