Gross exit ripples bond market

Market 'over-reacting' to Bill Gross news: Pro
Market 'over-reacting' to Bill Gross news: Pro   

The sudden exit of Bill Gross from Pimco sparked a knee-jerk selloff in the Treasury market, a drop in Pimco closed-end funds and rallies in competitors' shares as traders gamed whether the world's largest bond house would see an exodus of investors and a repositioning in its funds.

He will be succeeded by Daniel Ivascyn, the company announced later on Friday.

Treasury yields moved higher, with the 10-year going from about 2.50 to 2.54 percent, before retreating back to 2.52 in midmorning trading.

Read MoreBill Gross jumps to Janus

Gross, who ran the Pimco Total Return Fund, the largest bond fund, announced his immediate departure for Janus Capital Management where he will manage the Janus Global Unconstrained Bond Fund (JUCAX) and will be responsible for building out the firm's global macro fixed income strategies. Janus stock surged 36 percent, and rival BlackRock jumped 3 percent.

Bill Gross
Andrew Harrer | Bloomberg | Getty Images
Bill Gross

"I don't believe the fundamental news should be negative for Treasurys but people are talking about it," said Ian lyngen, senior strategist at CRT Capital. "The logic goes like this. Gross is bullish. He's leaving Pimco. Pimco is a big holder of securities, so that could likely lead to selling. Gross has a cult of personality. Pimco could lose assets. Do they go to Janus? Unclear."

The Pimco Total Return ETF fell slightly, but Pimco closed-end funds were hit hard. Pimco Corporate and Income Opportunity Fund dropped 5 percent, Pimco Global StocksPLUS and Income Fund fell more than 7 percent and Pimco High Income Fund fell more than 6 percent.

"It could account for worse-than-expected performance in high yield, and maybe a few basis points in bonds," said Adrian Miller, director of fixed income strategy at GMP Securities. There was some speculation that Pimco was the big player selling high-yield securities this week, ahead of Gross' departure.

A spokesman at Allianz, Pimco's parent company, declined to comment on Gross outside of a brief statement confirming the move. Its shares were weaker. Gross joins Richard Weil, CEO at Janus, a former colleague who left Pimco in 2010. Gross, 70, founded Pacific Investment Management Co. in 1971.

He built Pimco into a $2 trillion bond house, but the firm has suffered recently as investors pulled more than $64 billion from the Total Return fund since May 2013. The $222 billion fund is the largest bond mutual fund in the world.

The Wall Street Journal reported Pimco was about to fire Gross before he resigned, according to sources. The newspaper earlier in the week reported the Securities and Exchange Commission is investigating the Total Return ETF run by Gross for artificially boosting returns.

In terms of assets, Pimco dwarfs Janus, which has $177.7 billion under management.