Many U.S. bond skeptics have jumped back in

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Eight months ago Bill Gross, manager of the world’s biggest bond fund, said Treasuries “may need to be exorcised” and cleaned them out of his $245 billion Total Return Fund. The company then used derivatives to bet against the debt in March.

Now the Pacific Investment Management Co. fund has 16 percent of its assets in U.S. government securities as the debt posted the highest quarterly returns in almost three years.

“We’ve rebalanced,” Mohamed A. El-Erian, chief executive officer and co-chief investment officer at Newport Beach, California-based Pimco said in a Sept. 27 radio interview on Bloomberg Surveillance with Tom Keene in New York. “The U.S. benefits the most from a flight to quality.”

With the economy growing slower than forecast, the biggest bond rally in three years has repudiated Standard & Poor’s Aug. 5 downgrade of the U.S. AAA credit rating and driven yields to record lows, prompting bears to play catch up in a bid to match indexes portfolio managers use to measure performance. Economists have cut their estimates for the 10-year yield in March 2012 to 2.56 percent, from a projection of 3.75 percent in July, the biggest cut since January 2009.

A Deutsche Bank AG measure of asset allocation among the 20 largest non-indexed funds indicates that since early August they have pulled close to even with the benchmark Barclays U.S. Aggregated index weighting of 34 percent in Treasuries.