Bloomberg News

Gross Says Europe Won’t Escape Debt ‘Straitjacket’ for Years

November 29, 2011

(Adds comments from Gross beginning in third paragraph.)

Nov. 29 (Bloomberg) -- Investors should recognize that Europe’s problems are global and it will be years before nations in the region can escape from their “straitjacket” of debt, Pacific Investment Management Co.’s Bill Gross said.

With global growth likely stunted for years and interest rates kept artificially low, investors should consider risk assets in emerging economies such as Brazil and countries in Asia, Gross, manager for the world’s biggest bond fund, wrote in a monthly commentary posted today in the Newport Beach, California-based company’s website.

“Consider Brazil with its agricultural breadbasket and its oil. Consider Asia with its underdeveloped consumer sector but be mindful of credit bubbles,” Gross wrote in the note.

Europe’s sovereign debt crisis that began more than two years ago in Greece and snared Ireland, Portugal, Italy and Spain, now threatens to cost France its AAA credit rating. Italy was forced to pay above the 7 percent threshold that led Greece, Portugal and Ireland to seek bailouts when it sold 7.5 billion euros ($10.1 billion) in bonds today, short of the maximum target for the auction.

The Rome-based Treasury sold 3.5 billion euros of a new three-year bond, 2.5 billion euros of 2022 bonds and 1.5 billion euros in 2020 bonds, just shy of the top range of 8 billion euros for the sale. The 2014 note yielded 7.89 percent, the highest since September 1996 for a three-year bond and up from 4.93 percent when similar-maturity debt was sold last month.

‘Family Feud’

“In the bond market space, the favorite strategy will be to locate the cleanest dirty shirts -- the United States, Canada, United Kingdom and Australia at the moment,” Gross said. “Because of Euroland’s family feud, because of too much global debt, because of deflationary policy solutions that are in some cases too little, in some cases ill conceived, and in many cases too late, financial markets will remain low returning and frequently frightening for months/years to come.”

European policy makers have to choose between a full fiscal union or a smaller euro zone, two options with heavy costs that have paralyzed policy makers, Pimco’s Co.’s Chief Executive Officer Mohamed A. El-Erian said on Nov. 22 during an interview on Bloomberg Television’s “In the Loop” with Betty Liu.

Gross’s $244 billion Pimco Total Return Fund has returned 2.1 percent this year, trailing 80 percent of peers. The fund has risen an average of 7.56 percent over the past five years to beat 97 percent of rivals, according to data compiled by Bloomberg.

--Editors: Dave Liedtka, Paul Cox

To contact the reporter on this story: Liz McCormick in New York at

To contact the editor responsible for this story: Dave Liedtka at

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