How is PIMCO positioned in the credit markets?
McCulley: We are sticking with a small market overweight in credit. We favor U.S. financials because they benefit from a steep yield curve, strengthening balance sheets and a “too-big-to-fail” status. We also like Build America Bonds. On the other hand, credits from the periphery countries in Europe are not attractive in our view, given the sovereign credit problems there. However, we are comfortable taking credit default swap positions in certain sovereigns, including the U.K., Japan, Australia and Canada, although at higher spreads than we have seen recently. All of these countries can print their own currencies, essentially ruling out default, though not higher inflation. And, given our expectation for ongoing growth and wealth handoffs from developed to developing economies, we think there are very attractive opportunities in carefully selected quasi-sovereign and corporate issuers in emerging market countries with healthy balance sheets. Q: How is PIMCO positioned in other currenc
