U.S. slims down after bloated credit: Pimco
NEW YORK (Reuters) - Consumers, banks and financial companies are "slimming down" after a bloated era of easy credit, but face an extended period of fixing their finances, Pacific Investment Management Co said in a new report.
For investors, that means new bonds sold by banks are cheap and may be worth buying, according to Mark Kiesel, a portfolio manager at Pimco, manager of the world's biggest bond fund.
U.S. corporate bond sales soared to a weekly record last week on firm demand as financial companies sought capital to bolster their balance sheets. U.S. companies sold more than $40 billion of high-grade debt, a weekly record, according to Thomson Reuters data.
"The U.S. economy is entering a new era in which both individuals and companies are de-levering and repairing balance sheets," Kiesel said. Some financial bonds are being sold "at a significant discount."
Banks are facing more pressure to raise cash after recognizing losses and reporting some $300 billion in write-downs since the U.S. housing and credit crisis took hold last year.
"The U.S. consumer has gotten fat through a high-calorie diet of growing personal debt, and limited exercise evidenced by low personal savings," Kiesel wrote in Pimco's May U.S. Credit Perspectives report.
Investors should increase exposure to senior bank debt and selected capital or preferred issuance, said the report, noting Pimco has increased its credit exposure to global banks.
An outlook for falling housing prices and tight conditions for U.S. consumers means sectors like housing, retailers, airlines, autos and gaming will likely underperform. Industries such as energy, metals and mining, aerospace and global industries may outperform due to support from developing countries, the report said.
"Today's slimming down period for banks and financials will likely offer an attractive entry point to increase high-quality credit exposure at a time when valuations are as attractive as they have been in over a decade," the report said.
(Reporting by Walden Siew, Editing by Chizu Nomiyama)
