Between April and May this year, Pacific Investment Management Company (Pimco) suffered heavy losses on its holdings of 5- to 10-year U.S. Treasuries and mortgage-related assets—first hit by Trump’s punitive "Liberation Day tariffs," then battered by the "Sell America" wave.

Pimco’s 14-member investment committee, responsible for managing $2.2 trillion in client assets, gathered at the firm’s headquarters in Newport Beach, California, and London to assess the damage. For weeks—including weekends—the core team, led by Group Chief Investment Officer Daniel Ivascyn, spent extensive time gathering intelligence, communicating with clients, and strategizing amid surging Treasury yields.

At a make-or-break moment after a series of lackluster returns, Pimco not only held onto its U.S. Treasury positions but also increased holdings during the sell-off. This decision propelled the firm to the top ranks of U.S. fixed-income fund managers this year.

2025 has been the best year for the U.S. bond market since 2020. The $213 billion Pimco Income Fund—the world’s largest actively managed bond fund—delivered a 10.4% return, outperforming all major rivals benchmarked against the Bloomberg USAgg Index and marking its strongest performance in at least a decade. The $47 billion Pimco Total Return Fund followed closely with a 9.1% gain. Morningstar Direct data shows the Income Fund ranked in the top 3% of roughly 300 peer funds this year—a first since 2017.

**Pimco Outperforms Among Top 10 U.S. Active Bond Funds**

Pimco executives pinpointed April 2 as the turning point—when Trump’s sweeping tariffs triggered one of the most volatile periods in recent U.S. Treasury market history.

Coincidentally, Ivascyn and other senior portfolio managers were in London meeting clients that week, gaining real-time insights into global investor reactions. After intensive discussions and cross-time-zone calls, the team decided to maintain its bullish stance on 5- to 10-year Treasuries—a position held since January, anticipating economic headwinds from Trump’s tariff promises.

"The answer was clear: Tariffs would negatively impact growth by significantly increasing uncertainty for consumers and businesses," said Mohit Mittal, CIO for core strategies, who participated in early April discussions in Newport Beach.

However, yields spiked the following week, partly on fears that trade wars would deter foreign buyers—a key source of U.S. bond demand.

Yields peaked on May 22, days after Moody’s stripped the U.S. of its top credit rating, with the 10-year Treasury yield breaching 4.6%—a multi-month high—amplifying debt concerns.

That period was turbulent across markets. Investors pulled $2 billion net from the Pimco Income Fund in April—its first outflow since October 2023—while the broader U.S. bond market fell 0.7% in May, its worst monthly performance this year, per Bloomberg data.

Pimco’s investment committee increased meetings from three times weekly to daily, closely monitoring whether foreign investors were truly dumping Treasuries.

"We found investors weren’t necessarily exiting U.S. bonds en masse," Mittal noted. "Many were buying U.S. assets with hedges, reducing dollar exposure."

This insight gave Pimco confidence to add 5- to 10-year Treasuries during yield swings and mortgage-backed securities at depressed valuations, while maintaining short positions on long-dated bonds—a bet that paid off as long bonds underperformed.

Pimco has since trimmed some positions, shifting toward higher-yielding global bonds for 2026, but these holdings remain central to this year’s success.

**Track Record**

Co-founded by Bill Gross (who left in 2014), Pimco has a history of timely calls—most famously predicting the 2007 housing crash and scooping up cheap mortgage assets afterward.

The Income Fund’s outperformance over 3-, 5-, and 10-year periods underscores its edge, with Dodge & Cox’s fund ranking second.

**Challenges Ahead**

The departure last month of Mark Kiesel, global credit CIO and committee member, adds pressure to sustain performance. Michael Cudzil has joined the team, which includes Mittal, Qi Wang, and Ivascyn.

**Unexpected Treasury Rally**

Few foresaw 2025’s bond market strength. Early-year yield surges reflected bets on Trump’s growth/tax-cut plans widening deficits, tariff-driven inflation fears, and Fed criticism.

The reversal came as weak jobs data and recession risks prompted Fed rate cuts—boosting fixed income. Traders expect another cut on December 10.

Pimco wasn’t alone in strong returns: 90 of 175 large active bond funds (benchmarked to Bloomberg USAgg) matched or exceeded the market’s ~7% gain.

But Pimco’s timing and portfolio stood out.

In mid-January, at peak yields, Pimco highlighted bonds’ stability amid political uncertainty, underweighting 30-year bonds to bet on yield-curve steepening—a winning trade for most of 2025. By September, Ivascyn said they began profit-taking by reducing underweights.

**Shifting Focus**

Mittal said Pimco now sees better opportunities abroad, reducing U.S. rate exposure for positions in Japan, Australia, and the UK—where growth slowdowns suggest prudent diversification.

"U.S. Treasuries had the strongest run this year versus these markets," he said. "We can afford patience."