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Gross: Avoid Buying U.K. Debt, Look to Asia and Canada

Monday, 01 Feb 2010 02:49 PM

Bond king Bill Gross says avoiding buying debt in the United Kingdom is an absolute must for savvy investors now.

“Its gilts are resting on a bed of nitroglycerine,” Gross writes in his latest investment letter.

“High debt with the potential to devalue its currency present high risks for bond investors.”

"In addition, its interest rates are already artificially influenced by accounting standards that at one point last year produced long-term real interest rates of 0.5 per cent and lower."

Gross recommends shifting bond investments to Asia and developing countries.

“When the price is right, go where the growth is, where the consumer sector is still in its infancy, where national debt levels are low, where reserves are high, and where trade surpluses promise to generate additional reserves for years to come,” he says.

Of countries with sovereign debt funds, Gross favors Canada.

“Given enough liquidity and current yields I would prefer to invest money in Canada,” he says.

“Its conservative banks never did participate in the housing crisis and it moved toward and stayed closer to fiscal balance than any other country,”

Total U.K. debt (household, corporate, financial-sector and government) rose from 220 percent of GDP in 1990 to 300 percent in 2000 to 470 percent at its 2008 peak, The Wall Street Journal reports, which will make the coming deleveraging highly painful.

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Bond king Bill Gross says avoiding buying debt in the United Kingdom is an absolute must for savvy investors now. Its gilts are resting on a bed of nitroglycerine, Gross writes in his latest investment letter. High debt with the potential to devalue its currency...
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