By Mary Pilon

In spite of the gloom surrounding U.S. debt, Pacific Investment Management Co’s Total Return Fund modestly increased its holdings in Treasurys in July, according to holdings published on the firm’s website.

The world’s biggest bond fund boosted its government holdings of Treasurys to 10% of the fund at the end of July, up from 8% at the end of June. Government agency holdings made up 2% of the fund, up from 1% in June.

Mr. Gross also trimmed his Treasury hedge position to -3% from -9% in June, meaning he now has net positive exposure to Treasurys for the first time in months.

The fund also significantly reduced its holdings in money market funds and cash equivalents to 15% in July, down from 29% in June, according to the firm. It boosted mortgage holdings to 25%, up from 21% in June. Holdings in investment-grade credit stayed flat at 17%.

Executives of the Newport Beach, Calif.-based firm have been outspoken in recent weeks about their dissatisfaction with the debt deal from Washington. For months, Pimco’s founder and co-chief investment officer Bill Gross has said he prefers government bonds in places like Canada and Germany. In his August letter to investors, Mr. Gross wrote that nothing in the congressional compromise reached over the weekend made a significant dent in the U.S.’s deficit.

In June, Mr. Gross boosted his holding of Treasuries in the world’s biggest bond fund from 5% at the end of May to 8% at the end of June. But Mr. Gross didn’t stray from his bearish stance on the market. Earlier this year, Mr. Gross dumped Treasurys completely.

Pimco’s Total Return Fund has $245.5 billion in assets, according to t