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Report: Pimco sells off all US government holdings

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March 9, 2011 09:38 PM EST | AP

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NEW YORK — The world's largest bond investor has sold off all his fund's U.S. government-related holdings, according to a published report.

The move by Bill Gross, founder of the Pacific Life Investment Management Co., was reported in The Wall Street Journal Wednesday. A Pimco representative did not return calls for comment.

The Pimco Total Return Fund, the world's largest mutual fund, held no government-related debt by the end of February, according to an unidentified person at Pimco quoted by the Journal. In January, U.S. government holdings had accounted for 12 percent of the fund.

Treasury prices nevertheless rose Wednesday after the government saw strong bidding at an auction of debt.

The Treasury sold $21 billion in 10-year notes at a yield of 3.49 percent. Investors placed bids worth 3.32 the amount up for sale, better than the 3.08 average over the last year. The strong demand comes even as Gross and other money managers have sold Treasurys in recent months.

Investors like Gross believe that bond values could drop once the Federal Reserve ends its $600 billion bond buying program in June. The Fed is expected to discuss the program, which was intended to spur economic recovery, at its next meeting.

Gross has also expressed other concerns about the bond market.

At a meeting of Pimco's investment committee in January, the assembled money managers agreed that nervous investors would likely ditch Treasurys en masse as the U.S. government gets closer to the debt ceiling.

"The Treasury market will sell off as this gets more press and with more invective," Gross said in an interview with The Associated Press soon after that meeting. "Investors like us, we sell now."

Bond investors are creditors. In buying a Treasury note, investors are lending the government money in exchange for a promise to return it later with interest. So bond investors closely follow the ability of the government to repay debt.

U.S. government bonds and the dollar underpin the global financial system. The Treasury yield is used as a benchmark for all borrowing, and is a point of comparison for debt around the world.