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Gross Raises U.S. Debt Holdings to Highest Since 2007 (Update3) 

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By Dakin Campbell

March 10 (Bloomberg) -- Bill Gross, manager of Pacific Investment Management Co.’s $138 billion Total Return Fund, increased his holdings of U.S. government debt to 15 percent in February, the highest percentage since July 2007.

Pimco’s founder and co-chief investment officer bought government debt after holding a negative position through purchases of derivatives, futures or shorting Treasuries in January. Gross also boosted the world’s biggest bond fund’s holdings in mortgage-backed securities to 86 percent of total assets, up from 83 percent last month, according to the Newport Beach, California-based company’s Web site.

While the government debt category includes Treasuries, Gross has said in the past that Pimco is not interested in buying the securities. In February, Gross said it was “incumbent” upon the Federal Reserve to buy Treasuries but that he wouldn’t follow the central bank’s lead. Gross missed out on the biggest Treasury market rally in 14 years in 2008, saying that yields were too low because inflation will accelerate as the deficit surges.

“We wouldn’t buy Treasuries but we would buy bonds that are correlated and related to Treasuries with a higher yield,” Gross said in a Feb. 5 interview on Bloomberg Television.

Central bank policy makers have decided for the present time not to buy longer-term Treasuries, Federal Reserve President William Dudley said on March 6 after a speech in New York to the Council on Foreign Relations. Fed Chairman Ben S. Bernanke first discussed the possibility of purchases on Dec. 1.

11 Straight Months

Gross added government debt last month for the second time in three months after holding negative positions in Treasuries, debt issued by government-backed agencies such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank system or interest- rate derivatives for 11 straight months ending in November 2008.

At the end of January, Gross held minus 2 percent of assets in U.S. government securities. The fund held a negative 25 percent position in cash equivalents.

The difference in yield between two-year debt issued by mortgage-finance company Fannie Mae and similar maturity Treasuries rose to 76 basis points from a low of 26 basis points Feb. 26, according to Bloomberg data.

The Total Return Fund rose 4.8 percent in 2008, beating 93 percent of its peers, data compiled by Bloomberg show. The fund has lost 0.23 percent this year through February, according to Pimco data.

Mark Porterfield, a Pimco spokesman, has said the firm doesn’t comment on fund holdings.

To contact the reporter on this story: Dakin Campbell in New York atdcampbell27@bloomberg.net

Last Updated: March 10, 2009 12:25 EDT 

Tuesday, March 10, 2009 World's largest bond investor holds most gov't debt since 2007 Advertisement Tuesday, March 10, 2009 Text Size:    Bill Gross has 15% of his $800 billion fund in government debt.  Bond King Bill Gross put 15% of his Total Return Fund in U.S. government debt after holding a negative position in January. Gross has said he plans on following, and hopefully beating, the U.S. government into certain investments… So, Gross is betting the government will start buying its own debt to keep borrowing costs low.  Gross also increased the fund's holdings of mortgage-backed securities to 86% of total assets, up from 83% last month. The fund holds a negative 25% position in cash equivalents.  Read full article...  Crux note: Investment legend Jim Rogers also believes the government will buy tons of its own debt. But unlike Gross, he's waiting to go short. You can read the article explaining Rogers' thesis here.