Corporate Bonds Are ‘Treacherous Space’ in Europe, Peters Says

Are Government Bonds the Next Asset Bubble?
  • Prudential’s Peters says markets haven’t behaved all that well
  • Opportunity is in what the ECB is not buying, he says

European corporate bonds are a “treacherous space” for investors after the continent’s central bank began purchases of the securities, said Gregory Peters, who helps manage more than $600 billion at Prudential Financial Inc.’s fixed-income operation.

“The markets haven’t behaved all that well” to the bond-buying program, Peters said Thursday in an interview with Bloomberg Television. “There is real skepticism, and it’s unclear to me what real effect it has on the overall marketplace and, more importantly, on the overall economy.”

European Central Bank President Mario Draghi is seeking to push down borrowing costs to stoke economic growth. Purchases under a new program this week included securities issued by troubled German carmaker Volkswagen AG due in 2019, those of tiremaker Continental AG and of French mobile company Orange SA, according to a person familiar with the matter.

“The opportunity is not in what the ECB is buying, but what they’re not buying,” Peters said, citing higher-yielding securities. If the central bank is encouraging money managers to bet on riskier assets, “then that’s the investment you want to have.”

‘Play the Peripherals’

Peters is a former strategist at Morgan Stanley, who correctly warned in 2007 that mortgage losses risked causing a financial crisis. He joined the Newark, New Jersey-based insurer two years ago and is a portfolio manager for the $14 billion Prudential Total Return Bond Fund. He said Thursday that he’s avoiding sovereign debt that carries negative yields, and is willing to invest in nations that offer better interest rates beyond the core of Europe.

“We definitely continue to play the peripherals,” he said.

Prudential Financial is a competitor of Prudential Plc, the U.K.’s largest insurer. Peters’s company rebranded its investment-management arm this year as PGIM.

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