Pimco, the world’s largest bond investor, foresees bonds as the preferred asset class with the most promising prospects and spread opportunities in 2024. Despite the challenges posed by economic growth and declining inflation, Pimco expresses a strong preference for fixed income in their multi-asset portfolios.
The investment firm anticipates a return to calmer waters in 2024 after a period of high inflation and rising interest rates. In this context, bonds are expected to perform well, especially given the current overvaluation of stock markets. Pimco emphasizes that the risk-adjusted returns for equities, while still positive, are likely to be lower.
Pimco highlights the attractiveness of not only US bonds but also those from Australia, Canada, the UK, and Europe. However, the sensitivity of bonds in Australia and Canada to interest rates is noted due to a significant portion of homeowners having variable mortgage interest rates. Additionally, Pimco identifies a higher risk of recession in the UK and Europe compared to the US.
In their investment strategy, Pimco shows interest in emerging market bonds with a longer duration, particularly in countries with good credit quality and high real interest rates. Countries such as Brazil and Mexico, where the disinflation process is more advanced and real interest rates are notably high, stand out as favourable options.
Conversely, Pimco maintains a lower exposure to interest rate sensitivity in Japan, where monetary policy could tighten significantly with an increase in inflation.