Pacific Investment Management Co. says Australian debt markets are misguided to bet the central bank is almost done cutting interest rates, as the economy will struggle to cope as a resource investment boom fades.
Bonds backed by Australian home loans offer value as returns outweigh the risk on notes that are “close to bullet-proof AAA,” according to Pacific Investment Management Co., manager of the world’s biggest debt fund.
Pacific Investment Management Co., which manages the world’s biggest bond fund, is buying Australian notes backed by home loans in the secondary market to profit from higher yields as European investors dump the bonds.
Australia’s economy is vulnerable to a slowdown in China, where risks are “tilted to the downside,” meaning its dollar could slide even as domestic demand shows signs of improvement, Pacific Investment Management Co. said.
Australia’s two-decade-long boom is showing its age, making Pacific Investment Management Co. bullish on bonds due in three-to-five years because the central bank will be slower to raise interest rates.
Australia’s central bank may need to cut record-low interest rates at least two more times as mining investment peaks and slowing growth in China damps exports, said Pacific Investment Management Co., manager of the world’s biggest bond fund.