Text on screen: PIMCO
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ESTEBAN BURBANO: We do, we get questions about, from clients who, you know, they look at the projections for Fed Cuts going into next year, and they think about what does that mean for fixed income markets? What does that mean for yields going forward? So, you know, what will you tell to investors in terms of what to expect from bonds in general, but obviously for the income strategy going forward?
Text on screen: Daniel J. Ivascyn, GROUP CHIEF INVESTMENT OFFICER
DAN IVASCYN: Well, a lot of short term or near term uncertainty with, you know, some cuts you know, assumed to be coming from the Federal Reserve. But again if you step back and you look at valuations, you know, from a multi-year perspective what you realize is that high quality yields are what are quite attractive in the current environment, both relative to elevated equity valuations relative to tight credit spreads.
And even, you know, when you look at yields, you know, over the course of the last few decades, you know, quite attractive. So the bottom line is you know, as I mentioned earlier, back at the end of 2021, there wasn't much value in the bond market. We had very little exposure in our income oriented strategies.
Today, when we look around the world at the global financial market opportunity set yields in high quality yields in particular look quite attractive.
We think this is an environment where, you know, within the liquid areas of the opportunity set, you can build a diversified high quality portfolio with a yield in the five, 6% or even greater range with a lot of room for adding some tackle alpha along the way.
And the other piece just relates to cash. It's been a great environment for cash but the cash rate's coming down. It's gonna be the first time in a long time where the cash rate is close to the lowest yield on the board, so to speak. So after a couple of more Fed rate cuts, we do think investors are gonna take a look at the yield curve and consider locking in some of these higher base rates for a longer period of time.
Historically a steepening yield curve with cash rates going lower has been a good time to buy bonds because it's historically served as a catalyst for much more interest or demand in longer maturity bonds. So again, no guarantees this time, but even from a total return perspective we're becoming a bit more optimistic around the relative value proposition of a diversified portfolio of global bonds.
And again, it's felt rough. Inflation's remained high. There's been a decent amount of volatility in the market, a lot of focus on deficits, a lot of focuses, a lot of focus on tariffs. But when you look at our income oriented strategies over the last one year, year to date, three-year period in fairly sneaky fashion we've been able to generate an attractive base case yield, attractive overall, total return, taking into account price performance as well.
And a very, very pleased and proud of the returns we've been able to generate. So we remain, you know, hard at work but also continue to have some decent optimism around returns on a go forward basis.
ESTEBAN BURBANO: Great. Thank you. That's very clear. Dan. I think you, you said it right. The current environment continues to be attractive for bonds.
Disclosure
The discussion and content provided within this webcast is intended for informational purposes and may not be appropriate for all investors. The information included herein is not based on any particularized financial situation, or need, and is not intended to be, and should not be construed as, a forecast, research, investment advice or a recommendation for any specific PIMCO or other security, strategy, product or service. Fixed income is only one possible portion of an investor’s portfolio, which can also include equities and other products. Past performance is not a guarantee of future results. All investments contain risk and may lose value. Investors should speak to their financial advisors regarding the investment mix that may be right for them based on their financial situation and investment objective.
IMPORTANT NOTICE
Please note that this webcast contains the opinions of the manager as of the date recorded, and may not have been updated to reflect real time market developments. All opinions are subject to change without notice.
Past performance is not a guarantee or a reliable indicator of future results.
A word about risk: All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Inflation-linked bonds (ILBs) issued by a government are fixed income securities whose principal value is periodically adjusted according to the rate of inflation; ILBs decline in value when real interest rates rise. High-yield, lower-rated, securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. Diversification does not ensure against loss.
Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.
Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. There is no guarantee that results will be achieved.
References to liquidity are based on normal market conditions and are subject to change.
The credit quality of a particular security or group of securities does not ensure the stability or safety of an overall portfolio. The quality ratings of individual issues/issuers are provided to indicate the credit-worthiness of such issues/issuer and generally range from AAA, Aaa, or AAA (highest) to D, C, or D (lowest) for S&P, Moody’s, and Fitch respectively.
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