During the second quarter, gross domestic product rose at a 1.7 percent annualized rate, after a 1.1 percent gain in the first quarter, according to the Commerce Department. FOMC participants predicted in June that GDP will grow this year from 2.3 percent to 2.6 percent.
Treasury 10-year yields have risen 1.17 percentage points this year to 2.92 percent as of 7:40 a.m. in New York after touching a two-year high of 2.93 percent yesterday. The backup in yields spurred investors to pull out of bond funds, including Pimco Total Return Fund, the world’s biggest at $262 billion.
The fund, managed by Pimco founder Bill Gross, has lost 4.1 percent this year, putting it in the 21st percentile among similar funds, according to data compiled by Bloomberg. Over the past five years, the Total Return Fund has returned 6.9 percent, outperforming about 88 percent of competitors.
The flagship increased holdings of Treasuries and other U.S.-government-related debt in July to 39 percent, the highest level since April. Clients pulled an estimated $7.5 billion from the fund last month, research firm Morningstar Inc. said Aug. 2.
Curves Steepening
The premium 10-year Treasuries offer over 2-year securities reached as high as 2.55 percentage points yesterday and was at 251 basis points today.
“In addition to the stated yield, you get a lot of roll down and capital gains from just holding bonds that are rolling down the yield curve,” said Mather. “We think that’s attractive and will be attractive for the next few years and we think it’s more likely that rates fall from here rather than rise so you do have capital gains in front of you as well.”
As a bond nears maturity or rolls down the yield curve, it is valued at successively lower yields and higher prices.
Pimco expects the U.S. economy’s relative improvement to spur dollar gains in the short term against the euro, the Aussie and the British pound. The greenback may suffer in the long term because of the nation’s fiscal and current-account deficits, Mather said.
Europe, Australia