Y2K offers bond opportunity

The world’s largest active fixed interest manager, US-based PIMCO, says there is a unique opportunity for fixed interest investors in the middle range of credit qual-ity corporate bonds. And, it’s all thanks to Y2K fears.

The world’s largest active fixed interest manager, US-based PIMCO, says there is a unique opportunity for fixed interest investors in the middle range of credit qual-ity corporate bonds. And, it’s all thanks to Y2K fears.

The opportunity is the result of the rising needs of both investors and issuers alike to be more liquid ahead of Y2K.

According to PIMCO, investors’ demand for corporate bonds has been coming off because they are not as liquid as some other investments like treasury notes.

At the same time, corporations have been issuing more of these fixed interest secu-rities, bombarding the market because of fears of “closed” markets in the last three months of the year.

In simple terms, supply outstrips demand, further widening already wide spreads. This means that investors who buy mid-tier corporate bonds now could make a healthy profit after the market normalises early next year.

“Y2K is almost a “scheduled event risk”,” says John Wilson, PIMCO senior vice president in Sydney.

“Investors with a slightly longer time horizon can take advantage of Y2K fears, by increasing exposure to lower rated debt and then ride the inevitable spread con-traction as fears abate into 2000.”