High quality sovereign yields to become more credit-like: Bill Gross

In his March 2010 Investment Outlook Bill Gross tells us why he believes sovereign yields of high quality issuers such as the US, Germany and UK will become more”credit like,” the more they absorb credit risk of the markets they guarantee (such as Greece and California). We maintain our view that SA ranks among the lower credit risk nations, owing to low government debt metrics, lower expected annual fiscal deficits into the foreseeable future compared to AAA nations US and UK, and a high GDP growth beta to rising Asia and global stimulus. As a result, we still expect that the Rand will strengthen on all major crosses and that yields on longer-dated government bonds will converge with those of so-called high quality issuer counterparts. This doesn’t mean we approve of the South African government’s deficit spending, ratherjust note that yields may rise less aggressivle in SA compared to other markets over the coming five years. 

March 2010 Bill Gross Dont Care