PIMCO flagship fund decreases mortgage holdings in January

NEW YORK (Reuters) - The PIMCO Total Return Fund, the world's largest bond fund, decreased its mortgage holdings and increased its exposure to U.S. Treasury debt in January, data from the firm's website showed on Monday.

The fund decreased its exposure to mortgages, its largest holding, to 37 percent in January from 42 percent the previous month. It increased its Treasury holdings to 30 percent from 26 percent.

The fund, with has $285.6 billion in assets, is the flagship of Pacific Investment Management Co., based in Newport Beach, California. It is run by PIMCO founder and co-chief investment officer Bill Gross.

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.

PIMCO, a unit of European financial services company Allianz SE, had $2 trillion in assets as of December 31, according to its website.

The fund slightly decreased its holdings of investment-grade credit to 9 percent from 10 percent in December, but kept its exposure to riskier high-yield credit unchanged at 2 percent.

The PIMCO Total Return Fund is down 0.21 percent so far this year, but is still besting 67 percent of other U.S. intermediate-term bond funds, according to Morningstar.

The fund left its exposure to emerging market debt, non-U.S. developed markets, municipal bonds, U.S. government agency debt, and "other" forms of credit unchanged in January.

In his February letter to investors, entitled "Credit Supernova!," Gross said heavy reliance on credit in the United States will lead to inflation and, eventually, a breakdown in credit markets.

In an appearance on cable news channel CNBC last Wednesday, Gross said inflation-protected Treasuries and bonds of Mexico, Brazil, Italy, and Spain could produce returns of 3 to 4 percent, while the stock market could earn 5 to 6 percent.

(Reporting by Sam Forgione; Editing by Leslie Adler)