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Straight From PIMCO: Time to Be Conscious of Your Cash

Jerome Schneider explains how investors seeking capital preservation may benefit from the additional yield premiums available beyond near-zero-yielding money market funds.

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Text on screen: PIMCO

Text on screen: PIMCO provides services to qualified institutions, financial intermediaries and institutional investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized.

Text on screen: What has been the impact of the flight to “safety”?

Text on screen: Jerome M. Schneider, Head of Short-Term Portfolio Management

Jerome Schneider: Today’s economic environment is one fraught with uncertainty, where being selective in risk taking will likely prove to be beneficial.

Focusing on the defense is important,

Text on screen: A Mountain of Cash Earning Near-Zero Yields

A line chart shows 7-day yields by percentage, compared to money market fund assets. A gray bar portrays money market funds AUM; a blue line shows government retail money market funds and a green line shows prime retail money market funds by date over time from June 1, 2017 to June 1, 2020. The green line stays above the blue line as they both rise to a high above 500 and 4500 respectively, while the blue line falls to zero at the end with the green line just barely above it. The gray bar stays near 3000 throughout the chart but rises to nearly 5000 in March, 2020.

in fact, we’ve had over $800 billion year to date and over $2 trillion the past three years into money market funds as investors have grown more defensive.

Although the Fed’s policy response – really, cutting rates as well as providing liquidity through its various programs – has resulted in money market funds really being a safe haven, the cost to investors is growing. Money market funds currently yield about 0%, just over, and as a result, it’s going to have a dramatic impact on savers for the foreseeable future.

Text on screen: Why is this recovery likely to be different?

Interest rates are expected to remain depressed for years versus the prior recovery periods that we’ve seen. In fact, when you compare 2012 through 2015, another 0% interest rate cycle, we see that the expectation for interest rates was actually going to be moving higher over the foreseeable future.

Text on screen: Futures markets have priced Fed Funds rate lower for longer

A line graph shows implied forward Fed Funds Rate by percentage over time, with one month, three months, six months, one year, two years, and three years as benchmarks. A green line shows August 2012 holding near .12 percent until one year, when it shoots up to .22 percent at two years and then 0.57 percent at the three-year mark. A blue line shows August 2020, which starts at 0.10 percent at one month, dips slowly to -0.02 percent at two years, and rises to .05 percent at three years.

Today, we see the exact opposite with interest rates remaining at or below near zero for the foreseeable future. Truly, a secular phenomenon that we’re going to have to contend with.

Text on screen: How can investors better optimize their cash?

It’s time for investors to be conscious of their cash. A broader opportunity set affords potential for additional yields beyond money market funds for a modest increase in risk.

Text on screen: Broader opportunity set offer potential for additional yields

A line graph shows maturity yields by percentage for money market eligible securities on the left, with non-money market eligible securities on the right. The money market eligible securities start at overnight and run through 9-month securities, while the chart on the right starts at 1-year and runs through 5-year. A line at 1-year bisects the chart. The money market eligible securities include CP (maroon line) and CDs (light blue line), which both rise to above 3.5 percent after 8 months. Agencies and Treasuries start in the left side and rise on the right side, depicted as a green line and black line respectively. On the right side, a dark blue line portrays AA-rated corporates rising to just under .7 percent at the 5-year mark; a yellow line showing A-rated corporates rising to .8 percent at the 5-year mark and a sea blue line representing BBB-rated corporates rising to just above 1.2 percent at the 5-year mark.

Investors can do better than those immediate liquidity solutions if their time horizon is beyond a few weeks or even a few months by stepping out of those restrictive money market funds and capturing the premiums that exist today and will likely exist into the future.

Text on screen: Objectives: liquidity, capital preservation, and attractive return to potential

Image of PIMCO trade floor and Jerome Schneider

At PIMCO, we aim to benefit from these higher yields and these structural premiums, at the same time focusing on downside protection and most of all, liquidity management and capital preservation.

So despite the zero rate environment that we’re seeing at this point in time, clients should be focused on opportunities which are diverse enough, high in quality, and most importantly, can actively adapt to the changing landscapes to help produce positive total returns over secular horizons.

Text on screen: For more insights and information visit pimco.com.

Text on screen: PIMCO

Disclaimer


[For product and strategy videos available on YouTube, PIMCOtv, include as a footer text overlay for the first 5 seconds: PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized.]

IMPORTANT NOTICE

Please note that the following contains the opinions of the manager as of the date noted, and may not have been updated to reflect real time market developments. All opinions are subject to change without notice.

A “safe haven” is an investment that is perceived to be able to retain or increase in value during times of market volatility. Investors seek safe havens to limit their exposure to losses in the event of market turbulence. All investments contain risk and may lose value.

A word about risk: 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. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government, government-agency or private guarantor, there is no assurance that the guarantor will meet its obligations. U.S. agency mortgage-backed securities issued by Ginnie Mae (GNMA) are backed by the full faith and credit of the United States government. Securities issued by Freddie Mac (FHLMC) and Fannie Mae (FNMA) provide an agency guarantee of timely repayment of principal and interest but are not backed by the full faith and credit of the U.S. government. Diversification does not ensure against loss.

It is not possible to invest directly in an unmanaged index.

Statements concerning financial market trends are based on current market conditions, which will fluctuate. 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.

This material contains the opinions of the manager 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.

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 is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517) and PIMCO Europe Ltd - Italy (Company No. 07533910969) are authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The Italy branch is additionally regulated by the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act. PIMCO Europe Ltd services are available only to professional clients as defined in the Financial Conduct Authority’s Handbook and are not available to individual investors, who should not rely on this communication. | PIMCO Deutschland GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Deutschland GmbH Italian Branch (Company No. 10005170963) and PIMCO Deutschland GmbH Spanish Branch (N.I.F. W2765338E) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 32 of the German Banking Act (KWG). The Italian Branch and Spanish Branch are additionally supervised by the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act and the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and  203  to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively. The services provided by PIMCO Deutschland GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. | PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2), Brandschenkestrasse 41, 8002 Zurich, Switzerland, Tel: + 41 44 512 49 10. The services provided by PIMCO (Schweiz) GmbH are not available to individual investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. | PIMCO Japan Ltd, Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association and The Investment Trusts Association, Japan. All investments contain risk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is managed and operated independently. The reference number of business license of the company approved by the competent authority is (107) FSC SICE Reg. No.001. 40F., No.68, Sec. 5, Zhongxiao E. Rd., Xinyi Dist., Taipei City 110, Taiwan (R.O.C.), Tel: +886 2 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | PIMCO Latin America Av. Brigadeiro Faria Lima 3477, Torre A, 5° andar São Paulo, Brazil 04538-133. | No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2020, PIMCO.

CMR2020-0819-1307852

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