Bill Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co., said government bailouts across the globe suggest a “unicredit” type of bond market where rates on sovereign debt will resemble the yields of corporations and industries they guarantee.
“Sovereign yields will become more credit like,” Gross wrote in a monthly investment outlook posted on the Newport Beach, California-based company’s Web site today. “When sovereign issues become more credit-like as evidenced in Greece, Spain, Portugal and a host of others, they move closer in yield to the corporate and agency debt that supposedly rank lower in the hierarchy.”
Investors should focus on those sovereigns where fundamentals promise lower credit or inflationary risk, including Germany and Canada. Investors should be cautious of Greece, Euro land lookalikes and the U.K., Gross said.
Under what Pimco calls the “new normal,” investors should expect lower-than-average historical returns with heightened government regulation, lower consumption, slower growth and a shrinking global role for the U.S. economy.
To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net
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