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Pimco, Fidelity Stung By Collapse Of Petrobras's 100-Year Bond

TedTed
in Fund Discussions
FYI: When Petroleo Brasileiro SA sold 100-year bonds in June, the move was largely seen as a sign the corruption-tainted oil producer had put the worst of its problems behind it.
For investors like Pacific Investment Management Co., Fidelity Management & Research Co. and Capital Group Inc. -- the three biggest holders of the securities -- that turned out to be a costly miscalculation. Since the $2.5 billion offering, the bonds have tumbled 15 percent. That’s four times the average loss for emerging-market company debt.
Regards,
Ted
http://www.bloomberg.com/news/articles/2015-09-14/pimco-fidelity-stung-by-collapse-of-petrobras-s-100-year-bond?cmpid=yhoo

Comments

  • scott
    edited September 2015
    "Guys, we have a new 100-year issuance from Petrobras."

    "Isn't that company in trouble as part of the country's larger political scandal?"

    "Yeah, but they're issuing a ONE HUNDRED YEAR bond! That MUST mean they're okay!"

    "Oooh, okay, lets buy a s-ton!"

    Cut to a few months later....

    "Hey, why did Brazil just get downgraded to junk? Gee, is that bad for the 100-year Petrobras bonds we bought?"

    Seriously, who's buying 100 year bonds of anything these days, especially a company that has been an incredible mess for a while now.
  • hank
    edited September 2015
    Scott said: "Seriously, who's buying 100 year bonds of anything these days, especially a company that has been an incredible mess for a while now."

    Yep - Sounds insane. ... I suspect perhaps insurance companies and some pension funds might find 100-year bonds of use in managing their long-term obligations and risks.

    Also, possibly a hedging tool for some bond fund managers in extremely limited amounts (I'm thinking of something like 1% of total portfolio.)

    To me, the 100-year bond sounds more like a derivative instrument than a real bond. Its risk/rewards are highly dependent on a whole host of unknowns.
  • AndyJ
    edited September 2015
    It's not just the 100y bonds; Pimco has quite a bit of P'bras of various issues across the board in their credit FI funds and cef's. And they've also got Gazprom almost everywhere you look ... just don't get it.
  • Sven
    These shops are supposedly the experts.
  • expatsp
    PIMIX / PONDX is doing very well so far this year. Their good picks are clearly compensating for the bad ones. The Petrobras bet hasn't worked out in the short term, but it still might within the next few years. They got bonds paying almost 9% from a company with huge oil reserves and a sovereign standing behind them. Of course no one wants the oil now, and that sovereign is in bad shape, but that could change in a couple of years (especially the oil part.) I personally think the odds are good (though less than 100%) that Petrobras won't default and they'll keep clipping those 9% coupons until they decide to move into something else.

    Anyway, you make a bunch of bets on 9% bonds, most work out, a few don't, and you've got a nice return for a bond fund.

    I don't own PIMIX, because I don't want any excitement in my bond fund, but those guys ain't dumb and have done well for their investors.
  • clacy
    scott, lol that's funny
  • davidrmorandavidrmoran
    I switched last winter from PONDX to PDI, for tradability, and am suffering. Not sure what to do next except wait it out.
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