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.

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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.

"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.

"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.