Pimco chief investment officer Bill Gross recommends that investors buy government bonds of countries with strong finances and sell government bonds of the weak.
“Investors should obviously focus on those sovereigns where fundamentals promise lower credit or inflationary risk,” he wrote in his latest commentary on Pimco’s Web site.
“Germany and Canada are amongst those at the top of our list while a rogues’ gallery of the obvious, including Greece, euro land lookalikes and the U.K. gather near the bottom.”
Gross has particularly scathing comments for the U.K., whose budget deficit totals about 12 percent of GDP. That almost matches basket case Greece, whose gap amounted to 12.7 percent of GDP last year.
“Bank of England Governor Mervyn King said that it would be difficult to cut government spending quickly, but that there needs to be a clear plan for doing so,” Gross writes.
“Not good enough, Mr. King. Don’t care. Show investors the money, not vice-versa. An investor’s motto should be, ‘Don’t trust any government and verify before you invest.’”
Other investors are bullish on emerging market bonds, which have seen their yield premiums over Treasuries narrow to the lowest level in 21 months.
“We have seen a flurry of emerging markets deals, and we expect appetite to remain strong in the near term given the good performance of these transactions,” Bryan Pascoe, global head of debt syndicate at HSBC, told the Financial Times.
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