Pacific Investment Management Co.’s Scott Mather, one of its six new deputy chief investment officers, said the firm bought Mexican and Brazilian government debt in the past month amid a selloff in emerging-market assets.
Pimco added to its local-currency holdings in the two markets, and favors Mexican five- to 10-year bonds and Brazilian notes due in three to five years, Mather said. The decline in developing-nation markets, which pushed an index of 20 nations’ currencies down 2.7 percent this year, was caused by investors who bought and sold emerging markets as an asset class, without distinguishing between individual countries, he said.
Mather’s promotion was announced yesterday by Pimco as Bill Gross overhauls the company’s leadership following the departure of Mohamed El-Erian, who shared the role of co-chief with Gross. Mather manages the firm’s global bond, absolute return and StocksPlus funds, he said.
Investors are holding “things they are uncomfortable with, so they sell everything,” he said about emerging-market assets in an interview in Mannheim, Germany today. “That causes even some of the bigger markets that don’t deserve it to be sold aggressively.”
The yield on Mexico’s benchmark peso bonds due 2024 rose rose 0.05 percentage point to a two-year high of 6.63 percent at 10:14 a.m. New York time. The rate for Brazil’s local bonds due in 2019 increased 0.04 percentage point to 13.22 percent, the highest since the bonds were issued a year ago.
Brazilian local currency government debt has lost 3.6 percent in the past year, according to Bloomberg World Bond Indexes, while Mexican bonds fell 1 percent. Treasuries declined 0.9 percent.
“It is much better in terms of absolute credit quality to look at Brazil or Mexico, and compare that to a developed world country,” Mather said. “If you look at the bond market both have sold off so that presents an opportunity.”
Pimco’s Gross said at the 2014 ETF Virtual Summit this month that Brazil is no longer a preferred emerging market for the company and it still finds Mexican debt attractive. Pimco’s biggest funds were bullish on Brazil in 2013, a wager that hurt performance.
Ten-year Treasury yields will climb to as much as 3.25 percent by year-end, while the rate on similar-maturity German bunds will rise to 2 percent, from 1.73 percent today, Mather predicted.