(Bloomberg News) Bill Gross, manager of the world's largest bond fund at Pacific Investment Management Co., said a renewal of asset purchases by the Federal Reserve will likely signify the end of the 30-year bull market in bonds.

"Check writing in the trillions is not a bondholder's friend," Gross wrote in his monthly investment outlook posted on Newport Beach, Calif.-based PIMCO's Web site today. "It is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme. It raises bond prices to create the illusion of high annual returns, but ultimately it reaches a dead end where those prices can no longer go up."

The Fed, led by Chairman Ben S. Bernanke, will announce another round of large-scale asset purchases when policy makers meet next week after deploying $1.7 trillion to pull the economy out of the financial crisis, according to a survey of the 18 primary dealers that trade debt with the central bank. Fed officials, who already cut interest rates almost to zero, are discussing more purchases of Treasuries to flood markets with cheap money as well as strategies for raising inflation expectations to prevent stagnating prices from undermining the recovery.

Gross, a founder and co-chief investment officer of PIMCO, said in March that bonds may have seen their best days while making an argument for investors to own fewer. He reduced holdings of government-related debt in the Total Return Fund for the third straight month in September, after the securities accounted for 63% of assets in June, the highest since it held an equal amount in October 2009.

Less Government Debt

The $252 billion Total Return Fund's investment in government debt was cut to 33% of assets in September, from 36% the previous month, according to the company's website. PIMCO doesn't comment directly on monthly changes in portfolio holdings.

The yield on the 10-year Treasury note dropped from a 2010 high of 4.01% in April to a low of 2.33% on Oct. 8, according to Bloomberg data, as investors purchased Treasuries in anticipation of further asset purchases by the central bank. The record of 2.04% was set in December 2008.

"Having arrived at its destination, the market then offers near zero% returns and a picking of the creditor's pocket via inflation and negative real interest rates," Gross wrote. "It will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment," Gross wrote.

Deflation Threat

Treasuries have returned 8.3% this year after losing 3.7% in 2009, according to Bank of America Merrill Lynch indexes.

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