Pacific Investment Management Co. is waiting for European central bankers to take more coordinated action to support markets before buying risky assets, according to Mark Kiesel, global head of corporate bond portfolios.
“Investors should consider waiting for European and global policy makers to reach an ‘all in’ moment before adding to risk assets,” Kiesel wrote in a report dated today on Pimco’s website. “Given a deteriorating outlook in Europe and the current absence of a more forceful action plan, the global economy is set to become increasingly vulnerable.”
European leaders are gathering for a summit in Brussels during the next two days as the debt crisis that started in Greece threatens to spread to the region’s banking system. The European Central Bank may announce a range of measures tomorrow to stimulate bank lending, said three euro-area officials with knowledge of policy makers’ deliberations, who spoke on condition of anonymity because the discussions are private.
“In this uncertain environment, volatility will likely remain high, liquidity poor, risk premiums wide and the global economy fragile,” Kiesel wrote. “Fortunately, many central banks around the world have the ability to ease monetary policy and they also appear more willing to coordinate.”
Kiesel recommended that investors hold more cash than normal and buy bonds that are secured or senior in the capital structure. Newport Beach, California-based Pimco manages the world’s largest bond fund.