Oct. 20 (Bloomberg) -- Pacific Investment Management Co.'s Bill Gross increased holdings of mortgage-backed securities in September to the highest level this year while avoiding Treasuries for a ninth straight month.

The $129.6 billion Total Return Fund, the world's biggest bond fund, had 79 percent of its assets in mortgage securities as of Sept. 30, up from 69 percent the previous month, according to the Newport Beach, California-based firm's Web site. The fund last held Treasuries in December.

``I don't think you buy Treasuries,'' Gross, co-chief investment officer, said in a Bloomberg Radio interview on Oct. 17. ``The return isn't there. They're obvious flight-to-quality vehicles.''

The Total Return Fund has lost 0.57 percent so far this year, outperforming 90 percent of its peers in the government and corporate bond category, according to Bloomberg data. In the last three months, it lost 2.1 percent, compared with a 0.49 percent slump by the benchmark it uses to measure performance, according to Pimco's Web site.

Mark Porterfield, a Pimco spokesman, didn't immediately return a voicemail seeking comment. Pimco, a unit of Munich- based Allianz SE, has $830 billion in assets under management.

To contact the reporter on this story: Sandra Hernandez in New York at shernandez4@bloomberg.net

Last Updated: October 20, 2008 15:21 EDT