(Bloomberg News) Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., eliminated government-related debt from his flagship fund.

Pimco's $237 billion Total Return Fund last held zero government-related debt in January 2009. Gross had cut the holdings to 12% of assets in January, according to the Newport Beach, Calif.-based company's website. The fund's net cash-and-equivalent position surged from 5% to 23%, the highest since May 2008.

Yields on Treasuries may be too low to sustain demand for U.S. government debt as the Federal Reserve approaches the end of its second round of quantitative easing, Gross wrote in a monthly investment outlook posted on Pimco's website on March 2. Gross mentioned that Pimco may be a buyer of Treasuries if yields rise to attractive levels.

Treasury yields are about 150 basis points too low when viewed on a historical context and when compared with expected nominal gross domestic product growth of 5%, he wrote in the commentary. The Fed is scheduled to complete purchases of $600 billion of Treasuries in June.

Gross in his February commentary urged investors to reduce holdings of Treasuries and U.K. gilts and buy higher-returning securities such as debt from emerging-market nations. "Old- fashioned gilts and Treasury bonds may need to be 'exorcised' from model portfolios and replaced with more attractive alternatives both from a risk and a reward standpoint," Gross wrote.

Emerging-Market Debt
Gross last month increased holdings of emerging-market debt to 10%, the highest since October, from 9% in January. He cut holdings of mortgage securities to 34% from 42% in January.

The Zero Hedge website first reported the change in assets today. Pimco doesn't comment on changes in holdings.

Treasuries returned 5.9% in 2010, according to Bank of America Merrill Lynch Indexes. The securities lost 0.6% so far this year.

Ten-year Treasury yields have risen for each of the past six months, according to data compiled by Bloomberg, the longest run since June 2006, as the economy showed signs of improvement and prices of commodities climbed. The 10-year yield fell six basis points to 3.48% today.

Gross kept the holdings of non-U.S. developed debt at 5% in February.