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Interest Rates: A Closer Look

PIMCO's Current Outlook for Interest Rates

Interest Rates Outlook

  • Comprehensive easing: The Federal Reserve sought to underpin markets and ultimately the economy when it announced a comprehensive easing package on 15 March, followed by the establishment of a commercial lending facility on 17 March. Policy measures included near-zero policy rates, large-scale purchases of U.S. Treasuries and mortgage-backed securities (MBS), lower rates on currency swaps, and regulatory relief for banks. It’s as close as it gets to "whatever it takes."
  • Outlook: A global recession stemming from supply disruptions and a sudden and drastic drop in demand (mostly for services) appears to be a foregone conclusion. Ensuring the recession stays relatively short-lived and doesn’t morph into an economic depression will require a large fiscal response to support individuals and businesses. Measures may include tax relief, transfers to individuals, subsidies to firms, and government guarantees for bank loans – all of which will increase government deficits and implicit government liabilities, and may lead to higher future deficits. However, given low – and in some countries negative – interest rates, higher government debt levels should be manageable.
  • Investor takeaway: The Fed's moves aim to help restore an orderly functioning of the very core of the U.S. financial markets: the Treasury market, the U.S. mortgage market and short-term corporate debt markets. However, more action will be needed and will likely be forthcoming over the next few weeks and months.
For more on PIMCO's outlook for markets and how investors can prepare for volatility, please see our “Market Volatility” page.
Last updated 17 March 2020.

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Disclosures

Global Central Bank Rates represented above: U.S. - Fed Funds Rate Upper Bound; UK - BOE Bank Rate; ECB - ECB Deposit Rate; Japan - Tokyo Overnight Average Rate (TONAR); Canada - BOC Overnight Rate; Brazil - Brazil Selic Target Rate; China - China 1-YR Benchmark Lending Rates.

Past performance is not a guarantee or a reliable indicator of future results.

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.

There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the current opinions of the author but not necessarily those of PIMCO and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.