PIMCO Buys Government Debt Outside the U.S., Citing Inflation

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PIMCO, the world’s biggest bond fund, who recently announced it was dumping their U.S. Treasury holdings, now says it is buying foreign debt in ‘Rising Star’ nations. Stating that the “pipeline of inflation is starting to hit globally,” PIMCO said emerging markets can best weather the inflation storm.

Bloomberg reports:

Pacific Investment Management Co. says investors should buy company debt in Russia, Brazil and other emerging markets where rising wages and relatively low public and private debt will help borrowers weather accelerating inflation.

The manager of the world’s biggest bond fund is buying debt of “rising stars” linked to nations with expanding wealth because they will more easily be able to pass on higher materials costs, Mark Kiesel, Pimco’s global head of corporate bond portfolio management, wrote in a report today on the firm’s website. At the same time, he’s avoiding companies dependent on growth in Europe, the U.S. and Japan that will struggle amid stagnant wages and debt-laden governments and consumers.

“Companies which are tied most directly into the strong economic growth engine in the emerging markets should have the most pricing power and ability to either pass through rising costs or absorb them without a significant margin hit,” Kiesel wrote. Those more tied to growth in developed nations, he said, “will likely have less pricing power and be more negatively affected by rising prices for both food and energy.” (Read full Bloomberg article)