According to the Wall Street Journal this morning, the world’s largest bond fund company Pacific Investment Management Company (PIMCO) favors agency mortgage-backed securities instead of government debt. PIMCO was founded by legendary bond investor Bill Gross, who serves as chief investment officer of the California-based investment firm. Min Zeng wrote this morning:

Despite the woes rocking mortgage companies Fannie Mae and Freddie Mac, bond-fund company Pacific Investment Management Co. continues to favor agency mortgage-backed securities over government debt.

Steve Rodosky, head of Treasury and derivatives trading at Newport Beach, Calif.-based Pimco, said the unit of Allianz SE prefers agency mortgage-backed securities, or MBS, the so-called pass-throughs sold by federally chartered firms, over debentures of the two companies as well as Treasurys as they provide more attractive yields.

“The best opportunities in the markets are in high-quality agency MBS,” Mr. Rodosky said in an interview Thursday. “You are getting a collateralized piece of paper at a significantly wider spread.”

The Journal’s Min Zeng noted:

Pimco’s flagship $129.56 billion Total Return Fund increased its mortgage-bond holdings last month to 65% from 61% in June, according to the data from the company’s Web site. In contrast, the fund continued to shed government-debt holdings, including Treasurys and agency debt last month for the seventh straight month. The fund is the world’s largest bond fund and is run by Bill Gross, the company’s chief investment officer.

Source:

“Despite Fuss, Mortgage-Backed Bonds Have Fans”
Min Zeng
Wall Street Journal, August 22, 2008

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