Bond strategies for an evolving market

Given today's shifting U.S. interest rate environment, investors should broaden their thinking about how to target their bond objectives. Here are several paths that can serve as frameworks for how to position portfolios to manage changes in interest rates and take advantage of opportunities across the broader global bond market.


Investors particularly concerned about rising rates may wish to complement their core bond holdings with allocations to low duration and ultra-short-term strategies. Together, they can structurally reduce interest rate sensitivity, while also providing greater potential for positive real returns than shorter-term investments alone.

Hypothetical example for illustrative purposes only. Not intended to represent any particular PIMCO product or strategy, nor is it a recommendation for any investor's particular needs.

Shorten portfolio duration

Shorter-duration fixed income strategies tend to reduce interest rate exposure, providing some cushion against rising rates; a substantial core bond holding maintains reasonable exposure to total return potential.


Investors can seek to take advantage of the opportunities created by uncertain markets and reduce mandated duration exposure by complementing core bond allocations with unconstrained bond strategies that give skilled active investment managers wide discretion to invest across the global fixed income and currency landscape.

Hypothetical example for illustrative purposes only. Not intended to represent any particular PIMCO product or strategy, nor is it a recommendation for any investor's particular needs.

Focus on broad and sector-specific absolute return strategies, with some core bond exposure

Because absolute return strategies seek positive returns rather than tracking a benchmark, they provide investment managers broad flexibility to allocate to areas of the market offering the potential for particularly attractive opportunities and minimize exposure to areas that may be at risk. During periods of rising rates, this may include allocating to short-duration instruments, investing in floating rate securities, or investing in areas less tied to U.S. duration like corporate credit and global bonds.


Investors that depend on their bond allocations to generate income may be particularly well-positioned to make portfolio adjustments aimed at protecting against rising rates without putting their long-term goals at risk. By diversifying income sources across the global bond universe, these investors can seek attractive, consistent yield while managing duration risk.

Hypothetical example for illustrative purposes only. Not intended to represent any particular PIMCO product or strategy, nor is it a recommendation for any investor's particular needs.

Complement core bond fund with allocations to higher yielding strategies and sectors

Focusing portfolios on strategies designed to maximize income across credit, emerging markets and global bonds – all of which are less sensitive to changes in interest rates than many traditional fixed income strategies – can help offset price declines caused by rising rates without sacrificing the potential for an attractive income stream.

More from PIMCO on Rates

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Rising Rates and Bonds

A short video offering basic education on what the fed funds rate is and how changes in the rate may impact bond investments.

PIMCO’s Outlook for Rates

Even amid a tighter policy environment, interest rates should remain historically low in the years ahead.

Rising Rates: Dispelling the Myth

A reasoned analysis that takes into account historical interest rates, the likely path of rates going forward and the impact of past interest rate rises on returns suggests that rising rates may not be such a threat to bond investors.

The Benefits of Active Management When Rates Are Rising

After nearly seven years of a near zero federal funds rate, investors are concerned about an eventual Fed rate hike and investing in the current environment. We discussed rising rates and the benefits of active management with PIMCO managing director Jim Moore.

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Investors should consider the investment objectives, risks, charges and expenses of the funds carefully before investing. This and other information are contained in the fund’s prospectus and summary prospectus, if available, which may be obtained by contacting your investment professional or PIMCO representative or by visiting Please read them carefully before you invest or send money.

A Word About Risk: Absolute return portfolios may not necessarily fully participate in strong (positive) market rallies. 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 the current low interest rate environment increases this risk. Current 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. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Mortgage and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market’s perception of issuer creditworthiness; while generally supported by some form of government or private guarantee there is no assurance that private guarantors will meet their obligations. Commodities contain heightened risk including market, political, regulatory, and natural conditions, and may not be suitable for all investors. Diversification does not ensure against loss.

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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 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. Outlook and strategies are subject to change without notice.

Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Forecasts and estimates have certain inherent limitations, and unlike an actual performance record, do not reflect actual trading, liquidity constraints, fees, and/or other costs. In addition, references to future results should not be construed as an estimate or promise of results that a client portfolio may achieve.

Duration is the measure of a bond's price sensitivity to interest rates and is expressed in years.

The allocation models presented here are based on what PIMCO believes to be generally accepted investment theory. They are for illustrative purposes only and may not be suitable for all investors. The allocation models are not based on any particularized financial situation, or need, and are not intended to be, and should not be construed as, a forecast, research, investment advice or a recommendation for any specific PIMCO or other strategy, product or service. Individuals should consult with their own financial advisors to determine the most appropriate allocations for their financial situation, including their investment objectives, time frame, risk tolerance, savings and other investments. Volatility is historical and is likely to change over time. Other fixed income allocations may be less volatile. Fixed income is only one possible portion of an investor's portfolio, which can also include equities and other products. Investors should speak to their financial advisors regarding the investment mix that may be right for them based on their financial situation and investment objectives.

The allocation models are as of 30 September 2016 and may not reflect the views of all PIMCO managers. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by PIMCO to be reliable, are not necessarily complete and are not guaranteed as to accuracy. Reliance upon information in this material is at the sole discretion of the reader.

Individuals should consult with their own financial advisors to determine the most appropriate allocations for their financial situation, including their investment objectives, time frame, risk tolerance, savings and other investments.

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