Strategy Overview
Investors need to meet two key investment objectives in the post-financial crisis era:

  • Hedge against future inflation risks, recognizing that potential inflationary pressures are mounting
  • Generate an adequate level of portfolio income, recognizing that it will likely provide a critical component of total return.

Traditional allocation responses have historically offered contradictory investment benefits. While Treasury Inflation-Protected Securities (TIPS) provide a contractual link to inflation, the yields on these instruments are historically lower than those of other fixed income securities. Credit markets, such as investment grade corporate bonds, have historically offered investors an incremental yield pick-up relative to comparable-maturity government bonds albeit without the typical benefits associated with government bonds. However, given most credit instruments are issued without a contractual inflation link, their ability to help investors meet liabilities in real terms, after adjusting for inflation, may be limited during periods of high or rising inflation.

PIMCO’s CreditRealReturn strategy provides investors with a simple portfolio structure that helps investors meet dual investment objectives. It seeks to offer a higher yielding alternative for hedging against secular inflationary risks by integrating the inflation-protection of TIPS with the high quality yield premium typically associated with investment grade credit. Thus, PIMCO’s CreditRealReturn is designed to allow investors to hedge future inflation risks and get adequate compensation in the meantime.

Applications for the Inflation‑Linked Credit Strategy

Sources of Added Value

Risk Management/Controls

Related Articles

How To Invest

Related Strategies

Fixed Income

Real Asset


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 certain risks including market, interest-rate, issuer, credit, and inflation risk. 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. Treasury Inflation-Protected Securities (TIPS) are ILBs issued by the U.S. Government. PIMCO strategies utilize derivatives which 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. There is no guarantee that these investment strategies will work under all market conditions and each investor should evaluate their ability to invest for a long-term especially during periods of downturn in the market. Diversification does not ensure against loss.

This material contains the current 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.