We believe fixed income markets offer higher yields and better valuations than in years, and we’ve positioned the Income portfolio to further benefit amid potential for volatility and a weakening economy.
Here, Dan Ivascyn, Alfred Murata, and Josh Anderson, who manage PIMCO Income Strategy, talk with Esteban Burbano, fixed income strategist. They discuss how the portfolio is currently positioned to benefit from the favourable environment, as well as from market volatility and a possible mild recession.
Q: How are you viewing the landscape for fixed income investing over the next six to 12 months?
Ivascyn: Despite potential for a mild U.S. recession this year, we believe fixed income markets can offer better value than they have in the last few decades. Yields are dramatically higher than the near-zero levels of a year ago, and inflation appears to be moderating. Short-term U.S. Treasuries are offering yields above 4%, and on high-quality assets, we can potentially provide yields in the 6% to 7% area. Even on an inflation-adjusted basis, real yields have reached levels not seen since the global financial crisis (GFC) in 2007-2008.
We think this is an attractive risk/reward proposition, and that this may be the time for those sitting on the side lines to consider getting back in.
We do expect uncertainty around economic growth, inflation, and geopolitical tensions to remain elevated, fuelling ongoing market volatility and decoupling the synchronized global growth we've seen over the past several years. Yet this volatility should provide fertile ground for active managers with a broad, flexible opportunity set.
This post is funded by PIMCO
