Pimco sees oil lower for longer, 'diamonds' among energy bonds

NEW YORK (Reuters) - Pacific Investment Management Co sees lower oil prices lasting for a longer time, with the bond firm cautious on oilfield services companies even as some high yield energy sector bonds have become more attractive. "We believe we are moving into an extended period of lower oil prices, and we are actively managing our clients' energy exposure with an eye towards benefiting from recent events," wrote Mark Kiesel, Pimco's chief investment officer for global credit, and David Linton, a portfolio manager, in a piece released on Pimco's web site on Wednesday. Crude prices have collapsed more than 50 percent in the past seven months, and are now trading near six-year lows. Pimco noted the price drop will pressure oil exporters and some oilfield services, particularly drillers. "For over a year, PIMCO has been shedding exposure to oilfield service companies," Kiesel and Linton wrote. "We continue to believe this sector is especially vulnerable to an oil price shock," they added. In contrast, careful selection among some exploration and production companies, as well as high yield bonds, could be rewarding, they wrote. "We remain favourable on select pipelines given their long-term contracts and lower sensitivity to commodity prices," they noted. Certain high-yield bonds could also provide an opportunity, with "diamonds in the rough" among "securities that are trading at distressed valuations but are sufficiently senior in the capital structure or have bondholder-friendly covenants." Kiesel and Linton also said they now favour U.S. Treasury Inflation-Protected Securities and the dollar against other currencies. Pimco had $1.87 trillion in assets under management as of the end of September, with investors watching the firm's moves and outlooks closely. The slump in oil prices has reverberated around the world, with energy stocks hard-hit and many money managers looking for bargains. The Orange County Employees Retirement System, for example, issued a request for proposals in December looking for investment strategies to exploit the changing energy landscape. More recently, Moody's Investors Service on Tuesday cut Venezuela's sovereign credit rating by two notches to Caa3, further into junk territory, citing a high risk of the country defaulting on its debt due to lower oil prices. (Reporting by Luciana Lopez; Editing by Chris Reese)