Salient to Investors:
Adam Bowe at Pimco said:
- Australian bonds are attractive after their worst run of losses since 1994 because the central bank will need to lower interest rates as mining investment drops.
- Pimco prefers to hold Aussie government bonds and high-quality spread assets like swap in the belief that interest rates will fall. The domestic outlook and the rise in global yields provide attractive valuations for Australian government bonds.
- Pimco said is fairly cautious on corporate debt given concerns about the economy and is favoring high-quality issuers.
- We are not at the end of the RBA’s easing cycle as the level of investment in mining will drop resulting in a significantly reduced growth in the sector that won’t be filled by residential construction and commodity exports.
- The Australian dollar is overpriced on fundamentals and lower interest rates and/or a lower currency is required to help transition the country away from mining-assisted growth.
The median economist predicts growth of 2.5 percent in 2013 and 2.8 percent in 2014. The median forecast calls for the Australian dollar, the world’s 5th most-traded currency, to fall to 90 cents by year-end 2013.
Credit Suisse indexes show that the RBA is the only major central bank expected to substantially ease policy over the next 12 months.
Read the full article at http://www.bloomberg.com/news/2013-07-29/pimco-bets-on-bonds-after-worst-run-since-1994-australia-credit.html
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