Pimco moves to neutral-to-overweight position on Italy and Spain
US asset manager Pimco has moved broadly to a neutral-to-overweight position on Italy and Spain, after a period of three years in which the firm has been underweight European peripherals, according to Andrew Balls, head of Pimco’s European investment team.
The move reflects the expectation of the ECB’s extended engagement buying government bonds and that Spain will apply for ESM/ECB support in the coming weeks.
“It also reflects the relative value that Italian and Spanish sovereign bonds and select private sector credit opportunities offer versus European and global credit alternatives,” Balls said.
The manager added that while Pimco has targeted exposure on Italy and Spain under the ECB bond-buying umbrella of one to three years, it has also extended out exposure to the five-year sector beyond the ECB umbrella, where the curve is steepest.
According to the firm, Italy and Spain offer relatively attractive sources of credit risk, not interest rate risk.
“We continue to take a cautious approach, scaling our Italy and Spain positions as credit risk, and reflecting the extent of execution risk surrounding the plans of the ECB and eurozone governments in building a more stable eurozone. We will continue to monitor the process very closely and adjust portfolios accordingly,” he said.
More in general, the asset manager sees the survival of the eurozone as depending on the big four countries – Germany, France, Italy and Spain – sticking together and, with the support of the ECB, forging a more stable currency union.
“Reflecting the systemic importance of these countries, and the ECB commitment to support market access for these countries, we also view Italy and Spain as safer forms of credit risk than Portugal and Ireland, which we plan to continue to avoid, together with Greece,” Balls said.