Pimco Flagship Fund Loses Big on Bond Shock

Bill Gross
Andrew Harrer | Bloomberg | Getty Images
Bill Gross

Pimco's flagship Total Return Bond Fund took a hefty hit in June, due to the sharp rise in bond yields that was sparked by fears the U.S. Federal Reserve will scale back its asset-purchasing program.

The Pimco fund, which is the world's largest bond fund, with over $285 billion asset under management, has shed 3.79 percent from its net asset value since the start of June. This makes it the 12th-worst performer out of 177 similar funds tracked by data firm Lipper, according to the Wall Street Journal.

Established in 1997, and led by Pimco co-founder Bill Gross, the fund boasts the highest performance rating from research firm Morningstar. However, the net asset value of the fund is down 4.57 percent year-to-date at $10.65, a low not seen since August 2008.

(Read More: Waiting on a Bond Market Auction for Cues)

This comes as data from TrimTabs Investment Research showed that mutual and exchange-traded funds hemorrhaged a record $47.2 billion of bonds in June, the highest outflow of any month on record.

The global sell-off in bonds began on May 22, after minutes from a Fed policy meeting signaled that its bond-buying program—which has suppressed bond yields and boosted stocks—could soon be pared back. The sell-off accelerated when Fed Chairman Ben Bernanke echoed these sentiments at a press meeting last Wednesday, suggesting that purchases could be scaled back this year, if the U.S. economic outlook continues to improve.

(Read More: Bond Fund Outflows Hit Record on Tapering Fears)

Bond market outflows stabilized somewhat this week, but the yield on 10-year U.S. Treasury note remains at 2.56 percent, close to a 2-year high.

On Tuesday Pimco CEO Mohamed El-Erian told CNBC that the Fed risked destabilizing the markets by providing too much guidance on their future plans regarding asset purchases.

Investing In 2.6% Yield Environment
Investing In 2.6% Yield Environment   

"When you give so much guidance to the market, you risk over-determining," El-Erian said on Tuesday.

(Read More: Pimco CEO: Too Much Fed Guidance?)

"We saw complete compression in risk appetite on the Street, and outflows from bond funds," he added. "So, technicals [are] still very vulnerable, but from a value perspective, there's value here in quite a bit of the yield curve, especially in the U.S."

Speaking just after the Fed's latest announcement on June 19, but before Fed chief Ben Bernanke outlined a rough roadmap for the "tapering" of quantitative easing (QE) at the following press conference, Bill Gross told CNBC that he expected 10-year Treasury yields to end the year at around 2 percent or lower.

Bill Gross: Tapering Has Been Deferred
Bill Gross: Tapering Has Been Deferred   

"I think that ultimately the tapering is delayed," he said. "I think we're at a value zone in terms of Treasurys, and in terms of high grade corporate bonds and mortgages and we're a buyer here this afternoon as opposed to a seller."

Pimco, or Pacific Investment Management Co, is based in Newport Beach, California, and is a unit of European financial services company Allianz SE.

By CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81.

Clarification: A previous version of this story mis-characterized a change in value in the fund during 2010.