| NEW YORK
NEW YORK The PIMCO Total Return Fund, the world's largest bond fund, decreased its holdings of U.S. Treasuries and mortgage debt in February, data from the firm's website showed on Monday.
The fund, which is run by PIMCO founder and co-chief investment officer Bill Gross, showed a cut in its Treasury holdings to 28 percent in February from 30 percent in January.
The company said on its website that the fund's holdings of U.S. Treasury debt includes Treasury notes, bonds, futures and inflation-protected securities.
The fund's exposure to mortgage debt - its largest holding - was also slightly reduced to 36 percent from 37 percent. That is the fund's lowest exposure to mortgage securities since August of 2011.
The fund, which has roughly $288.21 billion in assets, is the flagship of the Newport Beach, California-based PIMCO.
The fund also showed a slight cut in its holdings of non-U.S. developed market assets to 11 percent in February from 12 percent.
It showed an increase in exposure to high-yield "junk" credit to 3 percent in February from 2 percent. That is the first increase in high-yield credit in four months.
Gross, in his March investment letter, said that investors should expect lower returns from high-yield bonds.
"Corporate credit and high yield bonds are somewhat exuberantly and irrationally priced," Gross said.
Gross added that high-yield bonds with current interest rates of 5 percent to 6 percent are likely to produce real returns of just 3 percent to 4 percent after taking into account future defaults and recovery rates.
The flagship fund is down 0.01 percent this year as of March 8, the firm's website showed.
Gross said that the bonds are being propped up in part by the Federal Reserve's bond-buying program, which he said has "unduly influenced" returns from high-yield bonds and stocks.
The Fed is currently buying $85 billion in Treasuries and agency-mortgage securities per month to push down long-term borrowing costs and spur economic growth.
Pacific Investment Management Co, a unit of European financial services company Allianz SE, had $2 trillion in assets as of December 31, 2012, according to the firm's website.
The fund's exposure to investment-grade credit, emerging markets, municipal bonds, government agency securities and "other" forms of credit were unchanged in February.
The exposure to investment-grade credit remained at 9 percent, emerging markets at 7 percent, municipal bonds at 5 percent, government agency securities at 4 percent, and "other" at 1 percent.
(Reporting by Sam Forgione; Editing by Kenneth Barry)