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"Starting yields are high, relative to history and other asset
classes, on a risk-adjusted basis," said Stephen Chang, who
manages about $2.8 billion in Asia-focused fixed income funds at
PIMCO, among others.
"This can create a 'yield cushion' amid a still highly uncertain
outlook," he told the Reuters Global Markets Forum (GMF),
providing investors an opportunity to build resilient portfolios
with robust yields and moderate risk.
Pacific Investment Management Co. (PIMCO) had $1.74 trillion of
total assets under management at the end of September 2023.
Chang said markets were priced for an "immaculate disinflation"
scenario, in which growth remains solid and core inflation
drifts lower towards central bank targets swiftly.
That pricing "may reflect complacency", he said, adding that
while the market sees a soft landing as a probable scenario,
PIMCO is more inclined to expect weaker growth ahead.
The recent rise in yields is a reflection of the Federal
Reserve's expected reaction to relatively stubborn core services
inflation, Chang said, after a stunningly strong jobs report
bolstered the case for more tightening by the central bank.
"I would highlight that higher rates, including the 30-year
mortgage, will tighten financial conditions, and may lead to the
Fed having to do less," he said.
Chang said PIMCO's strategies would look to favor U.S. agency
mortgage-backed securities (MBS), given their high quality,
government backing, robust liquidity, and attractive valuation.
He said PIMCO also broadly favoured securitised investments and
structured credit within fixed income.
(Reporting by Anisha Sircar in Bengaluru; Editing by Divya
Chowdhury and Clarence Fernandez)
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