BlackRock Buys Italian Government Debt to Build Holding Back Up

BlackRock Inc., the money manager that added to its holdings of Italian government bonds during the European debt crisis, is buying more of it while holding securities of Argentina that its government refuses to redeem.

Bonds of both countries are being scrutinized by investors as Italy may face a hung Parliament after elections this week failed to place control of the government with one party. Argentina is contesting a court ruling that would oblige it to pay $1.3 billion to holders of bonds the country defaulted on in 2001, including BlackRock.

“This election, it’s not done,” Rick Rieder, BlackRock’s chief investment officer of fundamental fixed-income, said in an interview on Bloomberg Television’s “Market Makers” with Erik Schatzker and Stephanie Ruhle. “We started to add a little the other day to try and bring back some exposure.”

BlackRock, the world’s biggest fund manager with $3.79 trillion in assets, increased its stake in Italian government debt in October 2011 when the average yield for the nation’s 10-year notes was 5.78 percent. The yield peaked in November 2011 at 7.48 percent. Rieder said in an interview on Bloomberg Television on April 4, 2012, when the yield was 5.37 percent, that the firm had been paring its holdings.

Italy’s bonds advanced for a second day today amid speculation the nation’s lawmakers will set aside differences to form a broad coalition government after inconclusive election results this week.

The nation’s 10-year note yields fell eight basis points, or 0.08 percentage point, to 4.73 percent after touching 4.96 percent yesterday, the highest level since Nov. 15.

‘Worth Holding’

With the Argentine debt, “we think it’s worth holding on,” New York-based Rieder said. “It’s going to play out.”

Yields on Argentina’s benchmark bonds due 2017 surged 361 basis to 19.31 percent today in New York, the biggest jump on record. That’s about four times the average borrowing costs in emerging markets.

Speculation is soaring that the South American country will default for the second time since 2001 after Jonathan Blackman, Argentina’s attorney, said it would halt payments on its restructured debt before giving into holdouts who refused to accept prior renegotiations. Billionaire hedge fund manager Paul Singer’s NML Capital Ltd., a unit of Elliott Management Corp., is leading the group of investors pressing Argentina to pay them $1.33 billion for their defaulted bonds.

Rieder said the Fed’s $85 billion of monthly asset purchases will prevent U.S. interest rates from climbing. The benchmark target has been zero to 0.25 percent since 2008 to support the economy.

“Rates will stay low for a long time,” Rieder said. “You can’t be short because the Fed is buying it all. Every day that nothing happens, rates tend to trend lower.” A short position is a bet bond prices will fall.

The Fed has said it will keep buying bonds until the unemployment rate falls to 6.5 percent or inflation projections rise to 2.5 percent. The jobless rate is 7.9 percent.

Before it's here, it's on the Bloomberg Terminal.