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Century Bonds Having a Moment as JPMorgan, Pictet Load Up

Century Bonds Have a Breakout Moment as JPMorgan, Pictet Load Up

(Bloomberg) -- Century bonds are having a moment.

Investors scored an average return of 19% this year on 100-year debt from the three most prominent issuers: Argentina, Mexico and state-controlled Petroleo Brasileiro SA. That’s almost double the gain for the benchmark emerging-market debt index.

A dovish turn by central banks around the world has pushed yields down globally, prompting firms such as JPMorgan Asset Management, Grantham Mayo Van Otterloo & Co. and Pictet Asset Management Ltd. to seek longer-dated debt with higher payouts. The century bonds also offer higher duration, meaning they’re likely to outperform as rates fall. Worldwide, negative-yielding debt now stands at a record $13 trillion.

“There’s been a scramble for any bond with some spread -- the longer, the better,” said Guido Chamorro, a senior investment manager at Pictet in London, who’s overweight Mexico century bonds. His emerging-market debt fund has topped 75% of peers this year, according to data compiled by Bloomberg.

Century Bonds Having a Moment as JPMorgan, Pictet Load Up

“We wish more sovereigns had century bonds,” said Chamorro, who favors long-dated investment grade debt. Mexico’s 100-year securities look “very attractive” compared with 30-year notes from the sovereign or state oil firm Pemex, he said. Chamorro says he’s market-weight on Argentina’s century bonds, citing the lack of yield premium to shorter-dated debt. He doesn’t have exposure to the Petrobras notes.

Granted, century bonds by their very nature are among the riskiest debt securities in the world. They would “get slaughtered” if the Fed shocks markets by not lowering borrowing costs at the end of July, according to Hari Hariharan, chief executive officer of New York-based NWI Management LP. He still favors Petrobras’s 100-year debt on the possibility of bond buybacks.

Tina Vandersteel, a money manager at GMO in Boston, said she prefers Mexico’s 100-year securities over Argentina’s for the same reason as Chamorro. Assuming global monetary easing isn’t fully priced in, century bonds could stand to benefit more, she said.

Century Bonds Having a Moment as JPMorgan, Pictet Load Up

Zsolt Papp, a London-based money manager at JPMorgan Asset Management, said even though Argentina’s yield curve is inverted, the nation’s 100-year notes could outperform on the prospect of President Mauricio Macri’s re-election. The bonds slid as low as 66 cents on the dollar in May amid a selloff in Argentine assets before rebounding. Papp said longer-duration debt will benefit from a Fed cut this month and monetary easing measures by the European Central Bank.

“The Fed will likely remain accommodative,” he said. “That’s good for EM and century bonds.”

To contact the reporter on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net

To contact the editors responsible for this story: Julia Leite at jleite3@bloomberg.net, Alec D.B. McCabe, Brendan Walsh

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