Greece’s debt impasse is pushing yields on Italian and Spanish government securities to “attractive” levels, according to Pacific Investment Management Co.
Its view is based on the Mediterranean countries’ 10-year bond yields being close to those of similar-maturity Treasuries, even though Europe’s economy is growing “significantly” slower than the U.S., said Mark Kiesel, chief investment officer for global credit at Pimco. Spanish 10-year yields rose above 2.5 percent for the first time in 10 months on Tuesday as fallout from Greece spread through the euro region’s peripheral securities.
“There’s clearly an opportunity,” Kiesel told “Bloomberg Markets” in a television interview, without commenting on specific transactions of the U.S. investment company. “The Greek situation has created an interesting situation. The spread between Italy and Spain versus bunds right now is pretty attractive.”
The yield difference between Italian 10-year bonds and similar-maturity German bunds leaped to 169 basis points on Tuesday, the most since October, before retreating to 146 basis points as of 11:42 a.m. London time on Wednesday. That level compares with the five-year low of 84 basis points, set this year in March. The Spanish spread to bunds was at 147 basis points on Wednesday.
Greece remains without a refinancing deal after rounds of negotiations with its public-sector creditors over past months failed to bridge their differences. The nation needs to seal an accord or get an extension before the euro area’s bailout expires on June 30, or risk missing payments on its debt of about 313 billion euros ($353 billion).
Kiesel reiterated Pimco’s view that the Federal Reserve will start raising interest rates in September.
“There is this global divergence between the U.S. and Europe,” he said. “The market is under-pricing the risk that the Fed may have to go a little bit faster and therefore we think the front end of the market is vulnerable,” he said, referring to shorter-maturity U.S. debt.
(An earlier version of this story was corrected, to use the word “situation” instead of “decision” in third paragraph.)