5-star bond manager: Head to Mexico for returns
The hunt for yield goes on as central banks around the world are in an easing mode. Disappointing economic data are pouring out from all over including Japan, China and Europe and prompting stimulative measures.
China’s key money-market rate slipped further after the People’s Bank of China cut the reserve requirement ratio deeper than expected leading some traders to think an interest rate cut isn’t too far away. And the unthinkable is happening in Germany. The European Central Bank's efforts are pushing the yield on German's government debt to negative for the first time ever.
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But at the same time, in the United States, the Federal Reserve led by chairwoman Janet Yellen is getting ready to end its policy of near-zero key interest rates. Jack McIntyre is the Portfolio Manager for the Legg Mason Brandywine Global Opportunities Bond Fund (GOBSX), which is a Morningstar rated 5-star fund.
Despite the euro zone slowing, McIntyre says there are still opportunities there in places like Italy, Portugal and even selectively in Spain. But he warns to “look away from core Europe which includes Germany and France” and of course Greece.
Even though McIntyre is staying away from Greek government debt, he doesn’t think Greece defaulting will create a global credit shock. He believes there is potential of a political fallout but not an economic one. McIntyre believes policymakers have a good handle on the situation and said “the ECB is in there very actively buying…to keep a lid on how high those yields can go.”
Mexico is where McIntyre likes because of "improving credit, attractive nominal and real yields." The portfolio manager isn’t concerned about Mexico’s reaction to a U.S. rate hike because a strong American economy will seep positively into its southern neighbor. McIntyre said “you’re going to see the Mexican peso strengthen, portfolio capital move into those higher yielding Mexican sovereign bonds.”
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