Pimco Cuts Holdings Of US, UK Bonds As Borrowing Rises

DOW JONES NEWSWIRES

Pacific Investment Management Co., or Pimco, is cutting its holdings of U.S. and U.K. bonds as borrowing rises and central-bank buying declines, hurting supply-and-demand dynamics.

The investment company, which runs the Total Return fund--the world's biggest bond fund--also is "becoming a bit more cautious than we have been" with corporate bonds, said Pimco Managing Director Paul McCulley in his outlook for the coming year. An interview transcript has been posted on Pimco's Web site.

"We weren't necessarily selling credit on any scale, but we'd reduced buying" in the second half of 2009, McCulley said. "Now, we're generally neutral versus the benchmark, but we believe that corporate spreads are still at levels where we see value in carefully selected high-quality credits, particularly in bank and nonbank financials and noncyclical sectors, such as utilities and health care."

Pimco also is underweight on Treasury Inflation-Protected Securities, McCulley said.

He also said Pimco is "making a very active decision to run light on risk," noting that "you can only eat what's in the cafeteria, and right now the cafeteria doesn't have anything particularly appetizing in it."

McCulley said Pimco sees a possible "wide range of economic outcomes in the new year, and it's a dangerous game to maintain a religious devotion to any one in particular," amid "sturdy growth" in emerging markets and slower growth in developed countries.

-By Nathan Becker, Dow Jones Newswires; 212-416-2855; nathan.becker@dowjones.com

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(END) Dow Jones Newswires

January 04, 2010 09:20 ET (14:20 GMT)

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