Bill Gross is Betting on Mexico - Here's Why Marc Prosser - Forbes
go to original August 1, 2012

Bill Gross reacts after chipping in for birdie on the 5th hole during the final round of the AT&T Pebble Beach National Pro-Am at the Pebble Beach Golf Links on February 13, 2011 in Pebble Beach, California. (Getty Images)

Bill Gross has taken a sizable position in Mexican government bonds. The ETF version of the the PIMCO Total Return Fund (BOND) has an incredible 10.34% of its market value in Mexican Bonds.  That is second only to US Bonds in terms of position sizing.  Even more interesting, the average duration of his Mexican Bond holdings is similar to the fund’s holdings in US Bonds, around 5 years.

The investment in Mexican Bonds has the potential to affect the fund’s performance much more dramatically than its other foreign holdings, because of its size and longer duration.  The fund has 5.13% of its assets (about half the size of its Mexico Position) invested in Japanese Debt, and its Japanese holdings are all very very short term.  As a result, the investment in Japan represents more of a currency diversification play, rather than a bond investment. After Japan, Brazil is the fund’s next largest holding with 2.10% of assets invested in Brazilian bonds.
 
Why would Bill Gross be interested in Mexico?

• Mexico has a debt to GDP ratio of 45% which is quite low when looked at in comparison to countries like the US (at 100% debt to GDP) and Japan (at 200% debt to GDP).
• Mexico’s Central Bank is very focused on fighting inflation which is a long-term positive for the currency and its debt. The central bank lending rate has stood at 4.5% for several years.
• Mexico’s economy continues to show good growth, in the 4 to 5% range.

Bill says:

This is a very different picture of Mexico than one would get from the nightly news, where they portray the country as a war between the government and drug cartels. After doing this initial piece of research I was curious about how to go about investing in Mexican debt. According to Bloomberg, peso denominated date with a maturity of 2024 was paying a yield of 5.30%. A nice juicy yield compared to treasuries.

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