Pacific Investment Management Co.’s Bill Gross said Italian debt is attractive relative to U.S. Treasury securities such as five-year notes even with a renewal of political uncertainty in the nation.
“We still have positions in Italian debt,” Gross said in an interview on Bloomberg Television’s “Market Makers” with Erik Schatzker and Stephanie Ruhle. “Despite the political problems that we see, the political problems in Spain, we think they are ultimately backed by Draghi and his promise to maintain a strong euro, which means a strong euro sovereign market financially and economically.”
Optimism that Europe’s debt crisis is improving helped push the euro to the highest level since November 2011 last week. The European Central Bank flooded the banking sector with more than 1 trillion euros ($1.35 trillion) in temporary cash a year ago, and central-bank President Mario Draghi said in July he would do “whatever it takes” to save the 17-nation currency.
Europe’s political tremors risk spoiling the region’s market calm, with corruption allegations buffeting Spanish Premier Mariano Rajoy and Italy’s Silvio Berlusconi narrowing the front-runner’s lead as elections loom. Berlusconi is gaining in public opinion polls before parliamentary elections on Feb. 24-25 even as he stands trial on charges he paid a minor for sex and appeals a four-year prison sentence for tax fraud.
Yields on 10-year Italian bonds rose 14 basis points, or 0.14 percentage point, to 4.47 percent, the biggest one-day gain since Jan. 30. The additional yield investors demand to hold the securities instead of German bunds increased for a fourth day after Italian Prime Minister Mario Monti said the spread may widen if Berlusconi is elected this month.
The ECB, which has held its main refinancing rate at 0.75 percent since July, will make no change at its next policy decision on Feb. 7, according to the median forecast of 58 economists surveyed by Bloomberg.
Spain’s 10-year yield climbed as much as 23 basis points to 5.43 percent, the highest since Dec. 18 after Rajoy faced calls to resign after newspaper reports alleged he accepted illegal cash payments.
Gross, the world’s biggest manager of bond funds, increased the proportion of corporate-debt holdings in his Total Return exchange-traded fund by almost 8 percentage points by adding notes of lenders from Spain’s Banco Santander SA to Italy’s Intesa Sanpaolo SpA in October after Draghi’s pledge to save the euro, data compiled by Bloomberg show.
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