(Bloomberg) -- Bill Gross says Pacific Investment Management Co. will smoke its competitors by year-end. Tobacco bonds from Ohio to California may help ignite returns at his flagship fund.

High-yield tobacco debt issued by states and cities has soared 16.3% in 2014, beating all parts of the municipal market, Barclays Plc data show. Yields at 11-month lows are sparking demand for the junk-rated assets even as Moody’s Investors Service forecasts a wave of defaults because of falling cigarette sales.

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