RPT-UPDATE 1-PIMCO'S Gross-Treasuries are most overvalued assets

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NEW YORK, April 4 (Reuters) - U.S. government bonds are the most overvalued assets in the world and it is tough to justify them as an investment given the level of inflation expectations, the manager of the world's biggest bond fund said on Friday.

Bill Gross, chief investment officer of Pacific Investment Management Company, or PIMCO, said he was starting to take on a little more risk and had bought some bank and investment bank bonds.

Speaking in an interview on CNBC, he added that it was too early to consider high-yield bonds since recession tends to produce defaults. However, he said it was not time to consider Treasuries.

"I think Treasuries are the most overvalued asset in the world, bar none," Gross said.

Treasuries have rallied almost non-stop since the middle of last year, when it became clear that the troubles in the housing market were growing into serious problems for financial markets and the economy.

This safe-haven buying has coincided with a shake-out in credit markets that may now have created opportunities to buy beaten down assets.

"I think we can move out a little bit on the credit spectrum," said Gross. "We bought some banking bonds and some investment banking bonds."

"So we are moving into the arena of double-A I suppose and single-A types of bonds, though it's still a little early for high yields and the real risk areas in the bond market, simply because a slow economy or a recessionary economy tends to some produce defaults on the corporate side and that's ahead of us."

(Reporting by Richard Leong and Burton Frierson, Editing by Chizu Nomiyama)