The world's biggest bond fund manager Bill Gross has had a change of heart on Treasurys, raising allocations to U.S.government bonds, as the fund seeks to pre-empt an increase in buying from Japanese investors.
The PIMCO Total Return Fund, which has $289 billion in assets, increased its allocation to Treasurys to 33 percent in March from 28 percent the previous month, the firm's website showed on Tuesday. The fund also decreased its exposure to mortgage bonds from 36 to 33 percent.
Gross said he had turned positive on Treasury bonds maturing in 10 years because the Bank of Japan's aggressive monetary stimulus plan would drive Japanese investors to seek higher returns in overseas markets .
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"This BOJ printing seeps out daily into global markets as Japanese institutions which have sold their Japanese government bonds to the BOJ look for higher yielding replacements," he told The Wall Street Journal on Tuesday. "Ten-year Treasurys to us look very low-yielding,but to them they yield 125 basis points more," he added.
Gross told the paper in an email that "to a certain extent" planning for what central banks buy is "a guessing game," but Japanese investors have traditionally bought Treasurys and French and German government bonds . "Of the three, we like Treasurys the best," Gross remarked.
Ten-year U.S. Treasury yields have fallen from around 2.05 percent in March to around 1.75 percent on Wednesday.
Gross, a vocal critic of the Federal Reserve 's $85 billion a month quantitative easing program, told CNBC on Monday that the Bank of Japan's own foray into massive bond buying was the equivalent of a popular energy drink, helping to grease the stock market's big rally.
(Read More: Pimco's Bill Gross: Beware of 'Monetary Red Bull' )
The massive amounts of liquidity being pumped into markets by global central banks amounted to"monetary Red Bull," and investors should fear what comes after the rush.
"Financial markets are really feasting on an anticipated Japanese flavored Red Bull," he told CNBC on Monday.
"Monetary Red Bull can feel good for a while, it doesn't have many calories, but it does have some negative consequences down the road," he said.
-By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt
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