Interest rates: Bond returns are back and Pimco is ‘excited’

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The $2.9 trillion fund manager is buying up Australian government bonds, among other things, betting that the Reserve Bank will need to cut rates less than the Fed. They are also wagering on the US housing market and consumer.

Already a subscriber?After 2023 turned out to be a bit of a damp squib for fixed-income investors as central banks kept raising rates to tame sticky inflation, this year Ivascyn, who helps oversee $US1.9 trillion in assets for Pimco, is more confident.

In October, when 10-year US Treasury yields hit 5 per cent on concerns that the US Federal Reserve may need to raise rates again, Pimco increased its interest rate exposure to the highest in a decade with a five-year duration. As an aside, Ivascyn, who has worked for more than two decades at Pimco from the firm’s Newport Beach headquarters, is a devoted fan of Australian rules football and netball, despite the brutal timezone difference.

“It makes sense to begin diversifying into some areas that weren’t exciting for a long time,” Ivascyn says. As for the world’s largest economy, while Ivascyn expects that it will take the Fed a “couple of years” to bring inflation to heel, he says a gradual cooling will allow the central bank to cut interest rates this year.

It’s the reason that his income fund has exposure to US Treasury inflation-protected securities, or TIPS, which offset the effects of inflation “without having to pay much for it”.

 

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