Years of significant growth in the U.S. corporate bond market have been accompanied by a steady decrease in overall credit quality and a trend toward higher leverage. Close to $80 billion in U.S. corporate bonds currently rated BBB potentially could be downgraded below investment grade in 2018, according to our estimates.
Investors may want to consider taking a more cautious and selective approach to BBB nonfinancial corporate bonds, particularly those in the low BBB rated segment, where the risk of downgrades is higher and the room for error is lower.
That said, we find many compelling BBB bonds in the U.S. marketplace today. As a large active fixed income manager, PIMCO is in our view ideally positioned to manage the risks in the complicated universe of BBB bonds.
In this issue, Research Affiliates provides its outlook for 2018 and discusses where it sees attractive return opportunities across the globe.
Equity investors in search of higher returns are increasingly turning to factor investing. Driving this trend is frustration with the underperformance and higher fees of traditional active equity approaches, along with a growing realization that many stock-picking strategies owe their results largely to the manager’s factor tilts rather than stock-specific risk.
The conclusion from PIMCO’s latest Cyclical Forum is that 2017–2018 could well mark the peak for economic growth in this cycle and that investors should start preparing for several key risks that lie ahead in 2018 and beyond.
After a strong run in emerging markets through the first nine months of 2017, a recent performance setback in local bond markets has led some investors to fear that the recovery cycle may be short-circuiting. Is the two-month run of underperformance in EM local markets an opportunity or a canary in a coal mine?
We expect the global expansion to continue in 2018. Yet investors should prepare for both the consequences of policy shifts and the opportunities presented in more difficult market conditions.
Despite a rate hike, monetary policy remains accommodative.
A review of last month’s market-moving events across countries and asset classes.
Congressional Republicans’ efforts to reduce taxes and reform certain elements of the U.S. tax code have been impressive thus far. In a matter of weeks, the House has passed its version of a bill, and the Senate is hoping to take up its own bill later this week.
Ben Bernanke and our panel of world-renowned advisors examine the outlook for global economic growth amid geopolitical shifts.
Growth in China’s offshore corporate bond market seems likely to continue in 2018, driven by the financing needs of investment grade state-owned enterprises (SOEs) and private sector...
Core U.S. Consumer Price Index (CPI) inflation rose 0.22% month-over-month in October, broadly in line with expectations for firming price trends but notably stronger than the 0.14% average monthly pace this year.
As many traditional credit sectors begin to approach full valuations, credit investors may want to look in new directions for attractive returns with manageable downside risk. In diversified credit portfolios today, de-risking and building liquidity are important, but we also see attractive relative value opportunities in a couple of (sometimes overlooked) sectors.
A review of last month’s market-moving events across countries and asset classes
The transition from Libor to SOFR as a benchmark short-term rate needs to be undertaken with tremendous care, and PIMCO would like to help by outlining clear steps for stakeholders...
How we’re positioning muni portfolios for turbulence – and the opportunities it may create.
Creative solutions may be needed to address remaining asset quality issues in Europe’s banks.
With stocks hitting record highs, many investors want to mitigate the largest source of risk in their portfolios – equities. In recent decades, fixed income has served this purpose well. The asset class has generally delivered both positive returns and negative correlations with equities.
President Trump has announced Fed Governor Jerome Powell as his nominee for Chair of the Federal Reserve Board. A Fed governor since 2012, Powell has been confirmed twice by the U.S. Senate and likely will be confirmed as chair without controversy in time to take over when current Chair Janet Yellen’s term expires in February 2018.
For the first time in over 10 years the Bank of England raised its official policy rate, a hike of 0.25% to 0.5%. The rationale is a combination of growth continuing at or slightly above trend, unemployment falling further from its current 42-year low...
One could argue that this latest statement came in on the dovish side. But a broader read rapidly dispels that notion.
Our central expectation for the European Central Bank (ECB) meeting on 26 October is for the Governing Council to extend asset purchases by nine months at €30 billion per month to September 2018, without yet committing to a specific end date, while strengthening its commitment to keep policy rates and the balance sheet unchanged when asset purchases end next year.
Actively managed front-end strategies may be able to mitigate the erosion of real capital experienced in passive benchmarks as rates rise.
A global factor helps explain why central bank policies often tend to be correlated across countries.
Unprecedented changes are reshaping the financial advice industry and affecting portfolio construction for individual investors. New regulation, technological innovation, capital market trends and the prospect of lower future returns are all exerting profound effects.
The governing coalition of Abe’s Liberal Democratic Party (LDP) and the smaller Komeito Party staged a big win in the snap election. Although recent public polls indicated a victory, the final tally was on the higher side of consensus expectations, including ours.
If the pace of monetary tightening in the U.S. is any sort of leading indicator for policy tightening in the rest of the world, including Australia, then in Australian parlance, it will be “like watching grass grow.”
Emerging markets debt and equity have many overlapping traits, but also differ in their exposure to countries and risks. The MSCI Emerging Markets Index contains 27 countries, with the five largest accounting for 70% of market value. Three countries in Asia - China, South Korea and Taiwan - comprise more than 50% of the index.
Global central bankers, ministers of finance and representatives from the private sector and civic groups gathered in Washington, D.C., last week for the Annual Meetings of the IMF (International Monetary Fund) and the World Bank Group.
Despite a hurricane-related surge in headline inflation, core inflation continued to run softer than expected in September, a trend that could make the Federal Reserve more cautious about hiking interest rates in December.
Last Month in Perspective: The convoy of developed world central banks reducing policy accommodation appeared to gather steam. Global political developments continued to capture headlines. Interest rates moved higher on the hawkish tilt in central bank rhetoric, and equities gained on generally positive economic data.
Policymakers in Washington have recently expressed growing concerns about the (planned) dwindling of capital levels at Fannie Mae and Freddie Mac – the two government-sponsored enterprises (GSEs) that help finance the vast majority of U.S. mortgages.
While PIMCO’s cyclical outlook is cautious overall, our outlook for emerging markets ex-China (EM) is more constructive. We expect further improvement in the EM macro picture as most emerging economies are at a different stage of the economic cycle than developed economies and they are still benefiting from relatively easy global policy conditions.
The unique attributes of corporate crossover bonds may offer solutions for investors assessing a range of objectives and risks.
Considered the most important political event in China, the National Congress of the Communist Party, held once every five years, has the potential to reshape the political landscape of personnel, policy and institutions for the next decade.
We believe it’s not too late for investors to seek attractive relative value opportunities and reposition equity exposures in this aging cycle.
In recent weeks Brent crude oil, the global oil benchmark, has shifted into backwardation – a state when spot prices are higher than prices for futures contracts, creating a downward-sloping curve for futures prices.
An analysis of default rates and government intervention since the financial crisis.
Russia has been front-and-center of the news this summer. Yet Western sanctions over Crimea, fallout from the investigation into meddling in the U.S. presidential election and last month’s bailout of the nation’s largest privately held bank have failed to thwart Russia’s emergence from stagflation.
With great fanfare, the White House and Republican congressional leadership released their long-awaited framework for tax reform, but many politically thorny issues need to be resolved – and quickly – before investors can feel confident that tax reform will materialize in the coming months.
We see three risks to the outlook for steady economic growth. Yet we also see opportunities for investors to target above-benchmark returns while emphasizing defense at a time of low volatility and full valuations.
Tail risk hedging seeks to protect gains without loss of upside equity potential.
Broad-based support for Europe among Germany’s key political parties vying for seats in the Bundestag’s 19th legislative period meant Sunday’s election was unlikely to be disruptive for financial markets. And the muted reaction in financial markets Monday morning confirmed this was the case.
Master limited partnerships, once considered utility-like yield instruments, have come to be viewed largely as leveraged commodity investments – but is the pendulum about to swing back?
Going into today’s important Federal Reserve meeting (with a press conference and an update to the economic projections, aka the “dot plot,” along with the usual statement), we at PIMCO along with most market participants expected the Fed to announce formally the start of balance sheet reduction this fall, perhaps in October. And that’s exactly what the Federal Open Market Committee (FOMC) did.
After a sustained period of return leadership by U.S. stocks, a number of diversifying assets now appear poised for outperformance.
As many observers expected, after five months of surprisingly soft inflation prints, prices firmed in August. U.S. core CPI inflation (which excludes the volatile food and energy categories) was up 0.25%, boosted by the largest-ever one-month increase in hotel prices and surprising firmness in rents and owners’ equivalent rents (OER).
Unmet borrower needs continue to grow in the U.S. commercial real estate lending market.
Analysis of environmental, social and governance factors (ESG) is particularly important for bank investments because the confidence of their depositors and borrowers largely drives banks’ valuations.
