Pimco Income Fund, led by Dan Ivascyn, hit by a big bond meeting

NEW YORK (Reuters) – The massive gathering of Treasuries has swept the world's biggest bond name.

Dan Ivascyn, Pimco's Chief Investment Officer, Pimco Income Fund, the largest actively managed bond fund with over $ 130 billion in assets, has fallen 93% since the beginning of the year, according to Morningstar data released Saturday.

Several macroeconomic transactions have hurt the Fund's performance so far this year: its underweight in Treasury bonds and corporate credit risk and its high exposure to mortgages.

Some $ 8.4 trillion in mortgage backed securities, backed by Fannie Mae, Freddie Mac and Ginnie Mae, were shaken by the rapid decline in bond yields as it was feared that a wave of mortgage refinancing would reduce the mortgage rate. value of these obligations.

When interest rates fall and homeowners refinance, investors in mortgage backed securities recover their capital that they must reinvest at lower rates. To compensate for the shortening of their portfolios, they buy non-callable Treasury bonds. In the jargon of the bond market, this is called the "convexity trade".

Pimco Income Fund has posted a 4.68% increase since the beginning of the year, lagging by 3.21 points on its multi-sector bond category, according to Morningstar data. In addition, the fund is 4.24 percentage points behind the Bloomberg Barclays US Total Return Index for the same period, according to Morningstar.

"The main objective of the income fund is to generate a sustainable dividend and a long-term return, especially in the more credit-sensitive portion of the portfolio. We are therefore prepared to be patient in the short term if we believe that we can protect in the long term. against the permanent capital loss, "Ivascyn said in e-mail comments to Reuters.

Pimco Income's mandate is more flexible to produce a high and consistent return and long-term capital appreciation than to define a total return strategy focused on the more traditional bond fund benchmark. The fund's annualized returns over three years and five years were 5.43% and 5%, respectively, according to Morningstar data dated August 16th. On an annualized basis over 10 years, the fund posted returns of 9.25%, well above all prices. Morningstar data show its competitors in the category.

Business credit spreads have been volatile. During the fourth quarter of 2018, when stocks plummeted and people feared much higher defaults, business credit has grown considerably in relation to mortgages. At the beginning of the year, as investor sentiment began to improve and central banks became more accommodative, corporate credit spreads narrowed significantly as a result of soaring equities.

However, although the MBS agency has not performed well in recent times, Ivascyn has described housing-related investments as "more resilient" than corporate lending.

"We believe that business credit is fundamentally weak and that it could have negative consequences if the economic situation deteriorates," he said. "We also believe that developed government bond yields are too low and could easily reverse, so we are comfortable with low rate exposure.