One of the world’s biggest bond managers sees the best opportunity in more than a decade to invest in public-debt securities as the Federal Reserve is likely to delay rate cuts until next year.
(Bloomberg) — One of the world’s biggest bond managers sees the best opportunity in more than a decade to invest in public-debt securities as the Federal Reserve is likely to delay rate cuts until next year.
Investors can get equity-like returns by investing in short-term publicly traded bonds, which are generating yields of 6% to 8%, Pacific Investment Management Co. executives said in a series of interviews with Bloomberg TV at the firm’s Newport Beach, California, headquarters.
“We haven’t seen this return potential in bonds in 14 years,” Mark Kiesel, Pimco’s chief investment officer for global credit, told Bloomberg’s Jonathan Ferro. “We don’t think these yields will be here a year from now.”
Agency mortgage-backed securities, in particular, present the best opportunity and can provide steady income even if the Fed stops raising rates for the cycle, Pimco Chief Investment Officer Dan Ivascyn said.
The “most attractive asset is agency mortgages,” Ivascyn said, noting that they’re trading at “record-wide spreads.”
Investors should steer clear of senior secured loans and private credit, Ivascyn cautioned. Borrowers on that floating rate debt are poised to face higher interest costs as the economy slows, setting those areas of credit markets up for “significant challenges,” he said.
“We do think there’s going to be disappointment there” with losses and debt restructuring, Ivascyn said. “Stay away from those sectors today until they reprice.”
Read more: Everyone Rushes to Private Credit Just as Risks Start to Grow
Opportunities for credit investors will emerge as commercial real estate and private credit valuations start to come down to reflect pricing in public markets, he said.
–With assistance from Michael Mackenzie and Jonathan Ferro.
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