Bill Gross's Love Affair With Mexico Debt Shows Signs of Fatigue

  • Latin American nation falls from Janus fund's top 10 holdings
  • Brazil only bullish emerging-market bet in biggest positions

For more than three years, Mexico’s best friend in the bond market has been billionaire fund manager Bill Gross. Now, there are signs the love affair may be cooling.

Mexican assets were no longer in the top 10 holdings of Gross’s $1.3 billion Janus Global Unconstrained Bond Fund as of Nov. 30, according to the most recent data on Janus’s website. At the end of the third quarter, two of his top six positions were bets that Mexico’s risk premium would fall in the credit-default swaps market.

Foreign investors have piled into the Latin American nation’s debt since 2011, buying more than half its fixed-rate peso bonds as celebrity fund managers from Gross to BlackRock Inc.’s Laurence D. Fink touted Mexican assets. The 71-year-old Gross, whose bullish Mexico comments started before he left Pacific Investment Management Co. in September 2014, said as recently as June that Mexico offered the “most attractive yields in the world.”

“Everyone likes a cheerleader on their side,” said Alejandro Urbina, a money manager at Chicago-based Silva Capital Management LLC, which oversees $180 million in assets including Mexican bonds. “As a Mexico bull, I have always felt reassured that a large, important investor like Gross was able to be vocal about a similar view.”

Urbina said he remains bullish on the Mexican debt regardless of Gross’s positioning. Erin Passan, a spokeswoman for Denver-based Janus, declined to comment on the fund’s holdings and whether Gross had shifted his outlook on the Latin American nation. Janus doesn’t publish a complete monthly list of the fund’s holdings, meaning Gross may still have bets on Mexico, just none large enough to crack his top 10. 

While Mexico was no longer among Gross’s top holdings at the end of last month, he maintained two long Brazil positions. His two biggest positions were in German government-bond futures.

Gross started talking up Mexico in June 2012, saying he favored the nation’s bonds over German debt because of the Latin American nation’s higher yields and lower debt levels. In a June interview on CNBC, he said a Mexico government debt trade was his “best” recent idea.

The Mexican peso weakened 0.5 percent Wednesday to 17.3393 per dollar as of 10:43 a.m. in Mexico City.

The bets on Mexico’s credit quality that Gross held at the end of the third quarter would have paid off in October, when the cost to protect the country’s debt from non-payment plunged in the credit-default swap market.

Mexico lured international investors by offering higher yields than the U.S. or Europe and the promise of faster growth as it opened its energy and telecommunications industries. Even as the expansion has fallen short of government and analyst projections, global money managers have boosted holdings in the country on expectations its close ties to the U.S. will fuel a rebound.

“We reached a situation where foreigners were buying most of the net issuance coming from the government,” Joe Kogan, the New York-based head of emerging-markets strategy at Bank of Nova Scotia, said in an interview. “Latin America is slowing down and we’ll have to see if it generates the same amount of interest.”

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