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Pimco bond fund sees first cash outflow in two years

December 10, 2010 | 11:26 am

Investors’ shift away from bonds is hitting even the bond fund industry’s biggest star.

The Newport Beach-based Pimco Total Return fund, the world’s largest mutual fund, saw a net cash outflow of $1.9 billion in November, marking the first time in two years that the amount of money exiting the portfolio was greater than what it took in, according to Morningstar Inc.

The outflow was a relative pittance -- just 0.8% of the total fund assets of $250 billion overseen by Pimco bond guru Bill Gross, who has led the portfolio since its launch in 1987.

Still, it’s another sign of the bond market’s reversal of fortune over the last two months as interest rates have surged, devaluing older fixed-income securities. Falling bond fund values have caused some investors to bail out.

The Pimco fund’s share price hit a record high on Nov. 4. From then through Thursday, the fund’s total return -- meaning the change in its share price plus interest earned -- was a negative 3.3%.

The fund’s return year to date still is a positive 8.1%, beating 73% of its peer bond funds, according to Bloomberg News data.

Longer-term interest rates have jumped in part on growing optimism about the economy, and there were more signs Friday that growth could accelerate in 2011. The Thomson Reuters/University of Michigan monthly U.S. consumer confidence index this month rose to its highest level since June.

The bellwether 10-year Treasury note yield was at six-month high of 3.28% at about 11:20 a.m. PST, up from 3.22% on Thursday and 2.92% on Monday. The yield has soared from 2.49% on Nov. 4.

-- Tom Petruno