U.S. home-loan securities without government backing are worth buying even after a two-month rally has lifted some prices to their highest since October, according to Pacific Investment Management Co.'s mortgage bond chief.

"The sector had just gotten stupidly cheap," said Scott Simon, whose Newport Beach, Calif., company is the largest bond manager. "And on any kind of loss-adjusted basis, stuff is still really cheap. If you didn't know about the last few months, you'd never know how it's gotten here. You can run some pretty draconian scenarios and get awfully high yields still."

Typical prices for the most senior prime-jumbo securities jumped to about 83 cents on the dollar on May 14, from about 63 cents on March 19, according to Barclays Capital. Similar bonds backed by Alt-A loans with a few years of fixed rates climbed to 45 cents, from 35 cents.

Nonagency mortgage bonds have generally risen after declining to, or near, record lows amid soaring homeowner delinquencies, tumbling home prices and capital-depleting losses at financial companies. The rally began after the March 23 announcement of the U.S. government's plan to co-invest with and lend to buyers of the securities under the Public-Private Investment Program and the Term Asset-Backed Securities Lending Facility.

Pimco's Simon said in a phone interview last week that it is not clear the initiative has been the biggest cause of the gains. He also cited previous drops to levels he called overdone, a rise in prices across asset classes and changes to bank accounting rules.

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