Bill Gross betting big on Mexican government debt

Billionaire bond fund manager Bill Gross is rekindling his love of Mexico.

The nation’s inflation-linked notes maturing in 2025 were among the top five holdings in Gross’s $1.5 billion Janus Global Unconstrained Bond Fund as of June 30, according to the fund’s website. Just three months earlier, he’d unloaded all of his Mexican government debt, marking what appeared to be a significant shift in his investment strategy after he’d spent years touting the country’s financial assets.

Mr. Gross acrimoniously departed what was then the world’s biggest bond fund in 2014 to join Janus Capital Group Inc. He’s seeking to profit from Mexican debt that’s buoyed by rising consumer prices as the peso plunges.

The nation’s tender has slumped 7.1% this year, the second-worst loss among the world’s major currencies. That’s helped push the inflation rate to 2.72 percent from an almost 50-year low of 2.13% in December. The pickup has investors piling into Mexico’s so-called linkers, with yields on the notes due in 2025 tumbling since May.

“Considering the peso’s depreciation and the probability that the one-offs that lowered inflation would not happen again, it was a good trade,” said Andres Jaime, a strategist at Barclays PLC.

Mexico’s peso dropped 1% to 18.7222 per dollar at 10:17 a.m. Monday in New York, leading losses among major currencies tracked by Bloomberg.

Janus didn’t respond to requests seeking comment from Mr. Gross on his Mexico bond investment.

The Mexican notes were equal to 4% of Mr. Gross’s fund, making it his biggest government-bond holding as of June 30. The fund has returned 11% this year, outperforming 60% of its peers, data compiled by Bloomberg show. It has posted a total return of 2.6% since Mr. Gross took over in October 2014, after he left Pacific Investment Management Co.

Mr. Gross started talking up Mexico in June 2012, when he said he favored the nation’s bonds over German securities citing the Latin American nation’s higher yields and lower debt levels. Last year, he said Mexico offered the “most attractive yields in the world.”

Mr. Gross isn’t alone in his view that Mexico inflation probably will keep accelerating. The country’s 10-year breakeven rate — a bond-market gauge of investors’ cost-of-living expectations — has climbed to 3.25% from 2.8% in April.

“Inflation is not projected to be as low and benign as it was late in 2015,” said Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc. in a research note. “Failure to stabilize the Mexican peso would add more upward pressure on inflation.”

Related Topics: Janus Capital Group