PIMCO Australia Prefers Buying Steep Yield Curves and Hedging in Local Currencies to Pick Up 9%

“Pacific Investment Management Co.’s Australian unit is using the developed world’s highest interest rates to reap profits by buying bonds offshore and hedging them back into the local currency.

Pimco, which manages about A$32 billion ($34 billion) of assets in Australia, favors investing in countries with steeper yield curves or buying Australian corporate debt sold abroad at more attractive prices, said Robert Mead, Sydney-based head of portfolio management, in an interview. Buying debt abroad and hedging the purchases offers yields of about 9 percent, he said.

Australia’s central bank has raised interest rates by 175 basis points to 4.75 percent since October 2009 to contain inflation amid a record mining-investment boom. The Aussie dollar climbed 29 percent against the greenback in the past 12 months as the yield gap between Australian and U.S. 10-year government notes widened to 227 basis points. Hedging allows Pimco to avoid currency volatility and benefit from the higher interest rates in Australia. Newport Beach, California-based Pimco manages $1.3 trillion worldwide.”

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