Higher bond yields create an attractive alternative to equities

by | Sep 21, 2023

Share this article

Group CIO Dan Ivascyn discusses how fixed income has the potential to offer lower volatility, greater resilience, and better relative value to equities at a time when risk assets look more expensive. Learn more about where we’re seizing opportunities today.

Recent data paints a surprisingly resilient economic picture. Can you share our outlook for interest rates in the global economy and what risks we’re monitoring?

Dan Ivascyn: So, the bottom line is that the markets have been romancing a no landing scenario or a soft-landing scenario. We think that’s increasingly embedded in the pricing of risk assets and given some pretty significant geopolitical uncertainty, the fact that there’s been a lot of tightening that’s occurred thus far, that monetary policy operates with considerable lags, we don’t think we’re out of the woods yet.

We still think that there’s at least a chance, maybe a decent chance still, of ultimately a recession or some period of weakness in order to get inflation back down very, very close to central bank targets or perhaps even at central bank targets.

Kim Stafford: How should investors think about the trade-off between stocks and bonds given the economic outlook you just described?

Dan Ivascyn: Yeah, so you’re absolutely right, stocks and other riskier areas of the investment opportunities set have performed very well the last few months. But when we look at the stock market today, we see pretty high multiples, pretty low equity risk premium in a historical context in this macro uncertainty.

We do think that there’s a bit better value within the fixed income markets, even some of the credit markets. Stocks have been doing well more recently while interest rates across much of the yield curve have gone higher or bond prices have gone lower.

So that relative value proposition between bonds and stocks has only gotten more attractive. So we think, again given this uncertainty, not only can you get attractive relative returns in fixed income, but much more predictable returns as well.

You can watch the full interview here

PIMCO Europe Ltd (Company No. 2604517) is authorised and regulated by the FCA in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world. © 2023, PIMCO Europe Limited. All rights reserved.


Share this article

Related articles

Negotiating today’s bitter-sweet credit conundrum

Negotiating today’s bitter-sweet credit conundrum

By Laurent Gorgemans, global head of investment management at Nordea Asset Management  As European corporate bonds display yields not witnessed for many years, investors are casting a renewed eye on the region’s credit market. But while all segments of European...

Jupiter Outlook 2024: Convertibles & Sovereign Bonds

Jupiter Outlook 2024: Convertibles & Sovereign Bonds

Jupiter Asset Management’s Lee Manzi and Makeem Asif discuss the outlook for the convertible bond market heading into 2024 and why they believe the dynamics of the asset class are changing for the better. Convertibles bonds have come through a challenging year as...

Trending articles

IFA Talk logo

IFA Talk is our flagship podcast, designed to fit perfectly into your busy life, bringing the latest insight, analysis, news and interviews to you, wherever you are.

IFA Talk Podcast - listen to the latest episode