Pimco Bets on Citigroup Bonds

From Staff Reports

Year to date, shares of the largest U.S. bank by assets, Citigroup Inc. (C) have shed more than 10% of their value, but some investors still think the beleaguered bank is a smart investment.

Pacific Investment Management Co., more commonly known as PIMCO, and Calvert Asset Management Co. find the bank’s corporate bond yields attractive, Bloomberg reports. The spread on Citi’s bond compared to U.S. Treasuries reached a 272 basis point high at the end of January. Although the spread has narrowed slightly over the past weeks, it is still historically high.

"The fact that the banking sector has attracted fresh capital in the last couple of months is huge,'' Mark Kiesel, an executive vice president at Pimco who oversees $158 billion of corporate bonds from Newport Beach, California, told Bloomberg. "We've been playing defense for the better part of two years, and the question we've been asking ourselves is when to go on offense. In the banking sector, we've started to do that."

PIMCO has been overweighting bank bonds relative to benchmark indices due to a market that is "too bearish" according to Kiesel. Renowned PIMCO Total Return Fund manager Bill Gross has also gone on record stating Citigroup, along with Bank of America Corp. (BAC) and Wachovia Corp. (WB) were "appealing".

"They've cheapened up to the point where there's fair value," Gregory Habeeb, who manages $8.6 billion of fixed-income investments at Bethesda, Maryland-based Calvert. "You're being compensated. I'm not saying there's not risk there, but at least you're collecting yield."

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