Inflation and Interest Rates
CIO Global Credit Mark Kiesel and Jason Duko, Portfolio Manager, discuss why now is the time to invest in high quality global corporate bonds, loans and high yield credit given current market dynamics.
Private credit tends to refer to non-bank lending, where loans are made directly to companies or borrowers. In this video, Lalantika Medema, Executive Vice President and Product Strategist, explains the concept and the areas of opportunity today.
Tune into an engaging discussion on aviation finance and learn how PIMCO has partnered with High Ridge Aviation to deliver funding solutions to this exciting area of specialty finance.
PIMCO Group CIO Dan Ivascyn discusses the key implications for bonds, stocks, and cash as central banks hold rates at elevated levels.
Pramol Dhawan, PIMCO’s Head of Emerging Markets, explores the evolving dynamics of emerging markets and how the firm’s unique strategies, global reach and robust relationships help clients navigate the asset class.
As global monetary conditions tighten, investors may be concerned about the impact on bondholders when interest rates are rising. Although bond prices typically fall when rates rise, the yields on newly issued bonds will also increase. Reinvesting into higher yields over time can actually increase a bond portfolio's overall return potential. This can help offset the initial price impact of rising rates.
A yield curve is a line graph of the relationship between bond yields and time to maturity, with the U.S. Treasury curve the most widely used. The normal shape, or slope, of the curve is upward (from left to right), meaning yields usually rise with maturity. The curve can signal where investors think interest rates are headed, and historically the slope has been a worthy indicator of economic activity.
A sharply upward sloping, or steep, curve has often preceded an economic upturn. The assumption is that interest rates may rise significantly in the future. Investors demand more yield to buy longer-dated bonds in anticipation of accelerating economic growth and/or rising inflation.
Curve flattening can signal a slowdown. It often occurs later in a cycle when a central bank raises interest rates to restrain a rapidly growing economy and tamp down inflation. Short-term yields can rise to reflect rate hikes, while long-term rates may fall as expectations for inflation and growth moderate.
Inflation and interest rates are often correlated and at times can move in tandem. Rises in key inflation gauges such as the consumer price index (CPI) or personal consumption expenditures (PCE) can prompt investors to demand higher yields on longer-dated bonds to compensate them if inflation remains elevated. Persistent acceleration in inflation can also lead central banks to raise short-term policy rates to increase the cost of borrowing and rein in price gains.
By contrast, signs of decelerating inflation can push bond yields lower. Persistently below-target inflation can trigger a loosening of monetary policy, including a lowering of interest rates, with the aim of encouraging borrowing and spurring growth.
How can PIMCO help you?
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.
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.
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 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. No part of this material 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 LLC in the United States and throughout the world. ©2023, PIMCO.