(Bloomberg) -- Pacific Investment Management Co. bought more than $1.4 billion of Russian government bonds as part of an auction to settle credit derivatives trades, essentially extending the investment giant’s wager on the nation’s debt, according to people familiar with the matter.

Pimco made a bid for the bonds in the swaps auction on Monday, said the people, who asked not to be identified because the information is private. The firm already had about $900 million of bond exposure, according to its most recent filings. Pimco’s bond purchases in the auction replace the exposure it had by selling swaps contracts to investors, which offered credit protection against Russia defaulting on its bonds.

Representatives at Pimco declined to comment.

There was significant demand to buy Russia’s bonds in the auction to settle contracts triggered by the government’s default in June. That drove up the value of the notes to 56% from 48% in an earlier round and as low as 20% three months earlier.

The move suggests that investors are betting Russian bonds will be worth more in the future and possibly even repaid. Russia’s default is unusual because the government has the money to pay investors, but is blocked from doing so by international sanctions for its invasion of Ukraine. 

After brokers’ buy and sell orders were offset, there was a net demand to purchase $500 million of bonds.

The Newport Beach, California-based asset manager reduced its exposure to Russia in the second quarter, but still held at least $900 million of sovereign debt in its income fund, according to the latest fund filings.

The $1.8 trillion asset manager now stands to profit, even though it had to pay out on the swaps. 

The higher auction price means that Pimco was able to pay less to protection buyers than it would have done several months ago -- about $176 million, rather than $320 million, according to calculations by Bloomberg. The delay in settling default swaps had frustrated some investors.

A further rally in bond prices could offset those losses, while a collapse would add to them.

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