GoldenTree Goes Bold in Buying Up Russian Corporate Bonds

Who’s afraid of Russian corporate bonds? Not GoldenTree Asset Management LP.

The $18 billion investment firm has been buying up the nation’s corporate bonds, saying the securities offer value after suffering a 5.4 percent selloff this year. Among its targets: securities of gas company OAO Gazprom, which now looks like “one of the best credits in the world,” Managing Partner Steve Tananbaum said in an interview with Bloomberg Television’s Stephanie Ruhle and Erik Schatzker yesterday.

“If you look at Russia, it’s a strong credit in a difficult environment,” Tananbaum, also chief investment officer at GoldenTree, said.

The New York-based company is diving into the market even as the U.S. and European Union step up sanctions against Russia in response to President Vladimir Putin’s push into Ukraine. GoldenTree is joining other firms in scouring less-loved debt markets for buying opportunities as the Federal Reserve maintains monetary stimulus for a sixth year.

Investors have poured money into emerging-market bond funds for the past four weeks, the longest stretch of inflows since May 2013, according to Bank of America Corp. and EPFR Global data. That follows about $16 billion of withdrawals from such funds in the first three months of the year in the face of slowing economic growth.

Why now? It’s the search for yield -- the 2014 version. Junk-bond yields in the U.S. are back down to near record lows and while the Fed is slowing its monthly asset purchases, it’s signaling it plans to hold the benchmark overnight rate at about zero until at least next year.

Recession Risk

Russian dollar-denominated corporate bonds are yielding 7.2 percent, up from 5.8 percent at the end of last year, JPMorgan Chase & Co. index data show. Gazprom’s debt has lost 4 percent this year, a rout that stands in contrast to the 3.9 percent gain in debt from energy companies globally, Bank of America Merrill Lynch index data show.

“This is going to be a very good entry point,” Tananbaum said yesterday.

At the same time, President Barack Obama is preparing to increase sanctions if Russia doesn’t cease its “illegal intervention and actions in Ukraine,” Attorney General Eric Holder said at a news conference in London today, a day after the U.S. and EU subjected more Putin allies to asset freezes and travel bans. Russia faces a fifty-fifty chance of recession, according to a survey of economists.

As Oaktree Capital Management LP’s Howard Marks said this month in a letter to investors, fund managers need to be bold if they want to perform better than their peers.

“Are you willing to be different, and are you willing to be wrong?” Marks wrote. “In order to have a chance at great results, you have to be open to being both.”

For GoldenTree, bold means taking advantage of a Cold War-esque standoff.

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