Pimco buys European bank debt on Draghi optimism

Pacific Investment Management Co. and BlackRock Inc. are among U.S. investors buying up bank bonds in Europe’s most indebted nations as central-bank chief Mario Draghi wins back the confidence of the world’s biggest money managers.

Pimco’s $2.9 billion exchange-traded fund boosted the proportion of its corporate-debt holdings by almost 8 percentage points in three weeks by adding notes of lenders from Spain’s Banco Santander SA to Italy’s Intesa Sanpaolo SpA, data compiled by Bloomberg show. BlackRock added to its Santander holdings in the period while AllianceBernstein LP increased its allocation to bonds of Spanish lender Banco Bilbao Vizcaya Argentaria SA.

Draghi’s pledge that the European Central Bank will do “whatever it takes” to save the euro is leading the region’s bank bonds to the longest winning streak over American counterparts in six months. Test results showing the stress in Spain’s banking system was less than estimated in June is fueling the biggest outperformance in the euro debt of that nation’s lenders in eight months.

“There are many European banks that have solid balance sheets, assuming there isn’t a breakup of the euro zone,” said Ashish Shah, the head of global credit investments at New York- based AllianceBernstein, which oversees $230 billion in fixed- income assets. “What Draghi’s done a good job of is reducing the perception of tail risk around Europe.”

Greater Willingness

Debt from Italian and Spanish banks rallied the most among financial debt globally last month, gaining 3.8 percent and 2.7 percent, as Draghi announced a plan on Sept. 6 to buy unlimited quantities of short-dated government bonds of nations that signed up for rescues.

Turin-based Intesa Sanpaolo and Milan-based UniCredit SpA led last month’s 1.4 percent gain on bank debt globally, Bank of America Merrill Lynch index data show. In the three months ended June, losses of about 3.9 percent on the bonds of Italian lenders and 5.5 percent for Spanish banks pared returns on the global index to 1.1 percent.

Draghi has shown a greater willingness than predecessor Jean-Claude Trichet to use the ECB’s money to aid Spain and Italy, with the central bank’s balance sheet expanding by 745 billion euros ($963 billion) since he took over in November.

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