|
By Kathleen Hays and Caroline Salas
Jan. 20 (Bloomberg) -- Municipal bonds are attractive and will gain as the government increases spending, according to Pacific Investment Management Co., the manager of the world’s biggest bond fund.
“Municipals are a bargain,” Bill Gross, co-chief investment officer of Newport Beach, California-based Pimco, said today in a Bloomberg television interview. “To the extent that you can get a yield of 5 to 5.5 percent in a single, double-A rated municipal,” the debt is attractive and will benefit from the new administration’s spending, he said.
Gross manages the $132 billion Total Return Fund, which gained 4.8 percent last year and has outperformed 99 percent of its peers over the past five years, according to data compiled by Bloomberg. The average government and corporate bond fund lost 8 percent in 2008, Bloomberg data show. Pimco is a unit of Munich-based Allianz SE, Europe’s largest insurer.
“High-quality” corporate bonds are also attractive, though the securities may face competition from government- backed covered bonds, Gross said. The Federal Deposit Insurance Corp. said last week it plans to extend a program to temporarily guarantee new senior unsecured bank debt to insure some assets for 10 years, up from 3 years. The change would accommodate the longer maturities of covered bonds.
Covered bonds are typically backed by mortgages or loans to public-sector institutions. They differ from asset-backed securities in that the collateral backing the debt remains with the borrower, which is liable if the assets are not sufficient.
Gross doesn’t recommend buying Treasuries as the government has at least another $500 billion of deficit spending brought on by the global financial crisis. U.S. government bond yields have fallen so low the debt is overvalued, he said.
“Treasuries are not the ideal choice for a lender looking for some type of return over the next five to 10 years,” he said.
To contact the reporters on this story: Kathleen Hays in New York atkhays4@bloomberg.net; Caroline Salas in New York atcsalas1@bloomberg.net
|
