{"id":4356,"date":"2025-01-20T18:29:03","date_gmt":"2025-01-20T17:29:03","guid":{"rendered":"https:\/\/a2kadvisory.com\/?p=4356"},"modified":"2025-01-20T19:47:31","modified_gmt":"2025-01-20T18:47:31","slug":"pimco-says-own-more-bonds-as-trump-ushers-in-era-of-uncertainty","status":"publish","type":"post","link":"https:\/\/a2kadvisory.com\/fr\/2025\/01\/20\/pimco-says-own-more-bonds-as-trump-ushers-in-era-of-uncertainty\/","title":{"rendered":"Pimco says own more bonds as Trump ushers in era of uncertainty"},"content":{"rendered":"
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(Jan 15): The uncertainty likely to be injected into markets this year by US President-elect Donald Trump promises to be yet another driver of attractive bond returns, according to Pacific Investment Management Co (Pimco).<\/p><\/div>

Unpredictability, paired with rising Treasury yields and diminished expectations for central bank easing is seen generating long-term returns for fixed-income investors, according to the firm overseeing the world\u2019s largest actively managed bond fund \u2014 which stands to gain from any inflows into debt.<\/p><\/div>

\u201cThe incoming administration\u2019s protectionist proposals have the power to reshape trade relationships and alter economic dynamics worldwide,\u201d according to economist Tiffany Wilding and chief investment officer for global fixed income Andrew Balls. The pair called out bonds\u2019 stabilising appeal amid growing economic agita as the US transitions to new leadership in a note titled \u201cUncertainty Is Certain\u201d.<\/p>

The firm\u2019s US$171 billion (RM769.97 billion) Pimco Income fund recorded some of the strongest inflows among active US bond funds in 2024, according to Morningstar data. The fund has outperformed a\u00a0Bloomberg<\/em>\u00a0aggregate gauge of the bond market and most of its rivals over the past five years.<\/p><\/div>

\u201cBond yields are attractive at a time when equity valuations and credit spreads are not, giving high-quality fixed income a favourable starting point,\u201d the pair wrote in their latest outlook. \u201cMarkets are pricing in terminal policy rates for global central bank easing cycles that appear somewhat high relative to our baseline outlook.<\/p><\/div>

Among US Treasuries, even with the potential for a lengthier Federal Reserve pause on interest-rate cuts, Pimco views intermediate-maturity yields as attractive relative to the firm\u2019s baseline long-term target of 0% to 1% for the neutral rate \u2014 where the economy is neither growing nor restricted.\u00a0<\/p><\/div>

The recent sell-off in Treasury yields \u2014 the 10-year hit\u00a0<\/em>4.8% on Monday, a level last seen in November 2023 \u2014 equates to having more interest-rate exposure in the five- to 10-year maturity range, according to Wilding and Balls.<\/p>

Pimco, which manages US$2 trillion in assets, was\u00a0bullish on five-year\u00a0debt last October, when the benchmark was at 3.85%. That call has yet to pan out; the rate is now around three-quarters of a percentage point higher.<\/p>

The Newport Beach, California-based bond manager also renewed a call for a steeper Treasury yield curve \u2014 where short-term yields fall below those on longer-maturity bonds \u2014 similar to its views in the weeks before the presidential election. That call has fared better, albeit in choppy trading due to fears that Trump will\u00a0prioritise growth\u00a0over the US\u2019\u00a0growing debt pile. The gap between the two-year and 10-year resumed a climb in December.<\/p>

Wilding and Balls see such a path as being \u201cdriven by central bank easing and a continuation of the recent rise in term premium amid concerns about elevated sovereign debt\u201d.\u00a0<\/p><\/div>

As such, Pimco is \u201cunderweight on the 30-year area of the US yield curve\u201d.\u00a0<\/p><\/div>

\u201cThere is significant near-term potential for lower central bank rates outside the US,\u201d according to the asset manager, especially if the Trump administration pursues \u201cmore aggressive trade policies that weaken global growth and weigh on commodity prices\u201d.<\/p><\/div>

In such a scenario, Pimco prefers UK and Australia debt \u201cbased on valuations and economic risks compared with the US\u201d.<\/p><\/div>

\u201cThe balance of potential policy outcomes increases near-term US inflationary risks while posing greater downside risks to growth\u201d for other countries, Wilding and Balls wrote, \u201cparticularly those with high global trade exposure that run persistent surpluses with the US\u201d.<\/p>

Still, there is scope for the incoming US administration to\u00a0move more gradually. \u00a0<\/p><\/div>

\u201cPresident-elect Donald Trump\u2019s tolerance for US equity market volatility is a key question for the outlook,\u201d they said. \u201cAggressive short-term measures to reverse long-term trends would likely contribute to economic disruptions, near-term currency volatility, and US equity market underperformance.\u201d<\/p>

Other points of consideration for investors over the next six to 12 months:\u00a0<\/p><\/div>