Bill Gross's Best Day Ever

Shareholders of Fannie Mae and Freddie Mac may have lost out Monday, but there's always somebody who makes money when news like their government takeover hits.

That's why yesterday we asked this question: Who has been buying up the mortgages that the government is now going to invest in? Pacific Investment Management Co., which runs the world's largest bond fund, reportedly backed up the truck for mortgage-backed bonds.

Today, Reuters has this:

The world's biggest bond fund, PIMCO's Total Return Fund, said it had its strongest ever day Monday as prices of mortgage-backed securities rose after the government seized control of mortgage finance agencies Fannie Mae and Freddie Mac.

Mortgage-backed securities issued by the agencies had one of their biggest rallies ever on Monday, driving their spreads as much as 40 basis points tighter against comparable Treasuries, as investor demand surged after the government's bailout and explicit backing.

"Our mortgage overweight and the performance of mortgages on Monday gave the Total Return fund its greatest one day relative performance (compared to our index) in its history," Bill Gross, chief investment officer of Pacific Investment Management Co. told Reuters on Tuesday.

If the bailout works and the credit markets can shake off further fear, Pimco's bets are going to be worth even more.