In one of his first public appearances since he succeeded Bill Gross last month as the fund’s lead manager, Scott A. Mather emphasized that there would be no changes to Pimco’s house view that interest rates would remain low in a weak global economy.
In such an environment, Pimco has argued, there is a strong case to made for investing in riskier securities, be they high-yield corporate bonds in the United States or debt securities issued by Mexico or Brazil. T he Total Return fund also has large holdings in inflation-protected Treasury bonds, which are very actively traded and provide a substantial liquidity cushion for the portfolio.
Mr. Mather’s presentation at a conference for exchange-traded bond funds, put on by ETF.com, came after a series of cautionary notes struck by investors.
Many bond managers remarked about how difficult it had become to sell higher-yielding bonds and how worried they were that funds with large positions in hard to sell securities would have a difficult time getting rid of these bonds in a market panic.
“All the liquidity has been sucked out of the market by the Fed,” said Robert G. Smith of Sage Advisory Services, an investment firm based in Austin, Tex. “There is just too much in the hands of too few – it really keeps us sleepless at night.”
Mr. Smith said there was $7.6 trillion outstanding in United States corporate bonds, yet the market traded only $20 billion a day.
For some time now, regulators have warned about this so-called liquidity illusion, whereby too many infrequently traded bonds end up in the hands of a small number of large asset managers.
Mr. Mather’s presentation was straightforward and low key, and it lacked the theatrics – if not the energy – that defined Mr. Gross’s public appearances.
Asked about his big bet on Europe, Mr. Mather said he was convinced that the European Central Bank would buy government bonds to spur growth and that Italian and Spanish bond yields would converge with those of Germany.
Mr. Mather was also pressed about the fund’s ability to exit its large positions in inflation-protected Treasury securities and mortgage investments that were not guaranteed by the government. Mr. Mather said he had no concerns about these holdings or Pimco’s ability to exit from them.
He said that Pimco was a small part of the high-yield market, which he said was actively traded.
“This is not a systemic problem we are talking about, ” he said.
More broadly, he made it clear that Pimco had sufficient reserves of easy to sell investments that could be liquidated in order to meet redemption demands.
“There are sections of the bond market that will overshoot,” he said, referring to a possible selling spree. “That is a risk – but its also an opportunity.”
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