Pimco Sees Risk Weak Dollar to Spur Less Demand for Asia Bonds

(Bloomberg) -- Pacific Investment Management Co. says that Asian dollar bonds face the risk of an unwinding in demand from Chinese investors amid a weakening in the U.S. currency.

“That’s definitely a risk -- less demand for dollar denominated assets in a world where the dollar is depreciating,” said Mark Kiesel, the asset manager’s chief investment officer of global credit, in a briefing in Hong Kong.

Negative or super-low interest rates have prompted yield hungry investors from Beijing to Paris to buy dollar bonds from Asia, pushing average premiums of such securities to record lows, according to a Bloomberg Barclays index going back to 2009. Chinese buyers, in particular, have loaded up on U.S. dollar debt, but the weakening currency could spur less investor interest, according to Pimco. China’s yuan last week advanced toward the strongest level since before its devaluation in 2015.

Pimco has been avoiding Asia dollar bonds as the credit spreads are too tight and finds better value elsewhere including Mexico and Brazil, according to Kiesel.

“We’re going to sit back and wait till they become cheap again," he said, referring to Asian dollar notes.

©2018 Bloomberg L.P.

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