Pimco considers long-term bonds attractive
US investment company Pacific Investment Management (Pimco) expects the term premium—the additional compensation investors demand for holding long-term government bonds—to remain high unless an unexpected economic downturn occurs. According to the company, higher yields create opportunities to buy bonds. The Japan Times reports.
Rising yields
The yield on 30-year US government bonds has risen to levels not seen in nearly two decades. Weaker performance of long-term securities has steepened the yield curve and increased the term premium. Pimco also noted rising long-term yields in Europe, the United Kingdom, and Japan.
Pimco Chief Investment Officer for non-traditional strategies Mark Seidner and Head of Emerging Markets Portfolio Management Pramol Dhawan said that the company would consider increasing its bond investments if yields rise further. According to them, higher yields can provide greater income, returns from holding the securities, and benefits from the shortening time to maturity under a steeper yield curve.
Fiscal risks
Among the factors that could push yields into a higher range, Pimco cited additional fiscal stimulus for an economy that does not need it, as well as worsening expectations regarding government debt supply.
More current news is available on the UA.News Telegram channel Telegram.
Last week, US Treasury Secretary Scott Bessent unexpectedly expanded the planned buyback of long-term bonds. This happened after US national debt exceeded $40 trillion and borrowing costs rose. The market relief proved short-lived: the next day, yields began rising again amid concerns about fiscal pressure and persistent inflation worldwide.
Market assessment
Pimco noted that even after the recent rise, yields on long-term US Treasury bonds and other sovereign securities remain approximately at their long-term historical averages. The company believes current levels appear unusually high mainly in comparison with the artificially suppressed rates of the period following the global financial crisis.
According to Pimco's assessment, higher starting inflation-adjusted yields can provide investors with sufficient income to partially offset a possible decline in bond prices. In 2022, starting yields were too low to offset losses from rapid rate increases, the company said.
