Pimco fixed income strategist Gordon Harding on a significant tailwind for long-term fixed income returns, a ‘generational reset’ in yields and three areas where clients are showing particularly interest
The macroeconomic environment should become more supportive for bonds over 2025 as gradually falling inflation allows interest rates to moderate, according to Pimco fixed income strategist Gordon Harding.
“The past few years have been characterised by significant macroeconomic volatility, with interest rates rising – and bond yields rising as a result of that – so that has been a real headwind for returns for the fixed income market,” he says in the above video, which was filmed at Wealthwise’s inaugural Wealth Forum towards the end of last year.
“Going forward, however, we think the macro environment will be much more supportive. We see positive, if slightly below-trend, growth for the next six to 12 months and inflation gradually coming back down to target by the end of 2025 – and the key point here is that this means interest rates will be able to continue to moderate and provide a significant tailwind for returns over time.”
When we think about future returns from fixed income, the starting yield has historically been a good indicator.”
Pointing to a “generational reset in bond yields over the past couple of years”, Harding goes on to note: “When we think about future returns from fixed income, the starting yield has historically been a good indicator. With yields at their highest levels for the last 10 or 15 years, therefore, we are seeing a lot of opportunities across many areas of the bond market.
“We are really focused, right now, on the higher-quality side of the market – so areas like investment-grade corporate bonds, government bonds and high-quality parts of securitised markets as well – but we are also seeing selective opportunities in areas such as high-yield and emerging markets.”
Relative value
Harding also highlights three areas where the firm’s clients are showing particular interest – one being emerging markets – on account of yields being “at very attractive levels” – and another being “funds that have more structural duration, given the potential tailwind from falling interest rates”.
“The area where we are seeing the most interest, however, is in our more flexible strategies,” he continues. “These are funds that are able to invest right the way across the fixed income spectrum, from government bonds to investment-grade to high-yield as well as emerging markets and the securitised sectors, depending on where we see the best relative value.”
You can view the whole video by clicking on the picture above, while the timecodes for individual questions are:
00.00: What are your key macroeconomic views at this time?
00.49: Where are you finding value in fixed income markets today?
01.34: How are clients allocating capital with Pimco at this point in the cycle?
