Marc Seidner, PIMCO’s CIO Non-traditional Strategies, discusses how unconstrained bond approaches may benefit investors in a rising rate environment.
The predominant risk factor that underpins traditional benchmark-oriented bond portfolios is interest rate risk. While rates remain generationally low, PIMCO believes they will rise modestly over time – an environment conducive to unconstrained-type bond strategies that aren’t tied to benchmark risks.
- The U.S. is in the midst of a sustainable economic recovery, which should eventually lead to the normalization of shorter-term interest rates. Given PIMCO’s New Neutral view that Fed policy rates will remain lower for longer, we believe this will result in the modest and gentle rise of longer-term interest rates over time.
- In this environment, an unconstrained bond portfolio – one that draws on a multitude of risk factors for return, rather than just interest rate risk – may benefit investors.