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After the worst year in at least a century, a lot of people seem to like bonds again. That’s helping restore some lustre to the world’s biggest fixed income manager (if you exclude central banks, naturally).
With the latest US CPI print confirming that inflationary pressures are subsiding, both two and 10-year US Treasuries are offering positive real yields for the first time in a while.
US junk bonds are on average 8.2 per cent. Single-A bonds yield 5.43 per cent. Even the bond yields of triple-A rated companies (what’s left of them at least) currently stand at 4.8 per cent. RIP TINA, basically.
Or as someone dubbed it to our colleague Katie Martin; Bonds Are Really Back And Really Attractive — BARBARA. Or, if you’re a fan of 1960s cult sci-fi films, Bonds Are Really Back And Really Elegant, Lavish, Likeable Assets (we’re so sorry).
As you’d expect, big bond house Pimco is very loudly trumpeting bonds. Earlier this summer chief investment officer Dan Ivascyn argued that bonds offered “equity-like returns with less risk”:
The bond market’s massive repricing may allow investors to earn the highest real yields in 12 years without taking uncomfortable risk. High quality bonds offer potential for equity-like returns with less volatility and less downside risk than equities — which is expected to be valuable as we confront the meaningful risks of persistent inflation or a hard landing. To that end, we’re focusing on high quality, less economically sensitive areas of the market, while preparing to pivot when pricing in other areas adjusts to reflect changes in fundamentals. Specifically, over the next few years, we expect to rotate into opportunities in the more economically sensitive or lower-rated areas of the public corporate credit markets, and then into the private markets as they finally begin to reflect true fundamentals.
To be fair to Pimco, it seems that investors agree! Or at least, some do.
Its parent Allianz reported results this week, and Pimco’s inflows are now accelerating, from €1bn in May to €3bn in June and €6bn in July, according to the data released and the subsequent analyst call. After €75bn of outflows and gouging losses last year, that must feel like blessed relief.
Pimco’s assets under management remain well below the $2tn pre-2022 bond bust peak, but are now back to ca $1.42tn (NB AUMs in the slide below — from the analyst presentation — are in euros):
On the call with analysts, Allianz’s CFO Guilio Terzariol said that “we might be at this kind of inflection point” for fixed income, and was optimistic that a nasty time for Pimco (and Allianz, tbh) was over.
So there is a nice momentum there. And then we see clearly what happens in the following months. It is logical to assume that there should be momentum coming through because the anxiety about rates going up should be much reduced compared to a few months ago. Now if you buy a fixed income portfolio, I would say, you invest in the fixed income portfolio, you get some nice return. And we should never forget that PIMCO is really a strong franchise. So if you want to put your money in fix income, definitely, you want to consider PIMCO as a strong option.
Further reading
— Pimco: navigating the end of the bond bull market.
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