Germany, Spain
"It got to the point where Brazil was trading inside of France," said Jani, whose firm oversees $2.1 billion and specializes in emerging-market securities. "People aren't used to seeing that kind of relationship."
In the second quarter, Gross also acquired a German government bond with a market value of $527 million as of June 30, Spanish government debt valued at $1.6 billion and about $1.3 billion of Italian Treasury bonds indexed to Euro-area inflation. The fund's Italian Treasury bonds have all dropped in price since June 30, including a 12 percent decline in those slated to mature in Sept. 2021, according to Bloomberg data.
"Linkers have a higher duration and a higher credit-risk exposure, so in times of stress you would expect to see nominal bonds outperform linkers," said David Schnautz, a fixed-income strategist at Commerzbank AG in London. The European Central Bank hasn't included the Italian inflation-linked debt in a purchase program that has given other types of bonds a "massive boost," according to Schnautz.
Financial Services
Pimco Total Return's positions in debt issued by financial- services firms, such as Citigroup Inc. and American International Group Inc., rose to 24 percent of net assets as of June 30 from 20 percent a year earlier, according to last month's SEC filing. These percentages don't reflect derivatives such as credit-default swaps. The BarCap benchmark had a 7.2 percent weighting for financial-company bonds as of June 30, according to Barclays Capital Inc.
Discussing "negative" or "neutral factors" for its performance in the second quarter, Pimco Total Return's quarterly report cited "an overweight of bonds of financial companies" along with holdings related to non-agency mortgages. The financial bonds "lagged the broader corporate market" and "risk aversion put downward pressure on prices" of mortgage- backed securities, Pimco said.