Investors should stick to discipline in their bond portfolios rather than being spooked by negative media sentiment, according to PIMCO.
The firm’s managing director in the Sydney office and co-head of Asia-Pacific portfolio management, Robert Mead reminded investors that bond markets were forward-looking and had already priced in interest rates hikes.
“This time of year, inevitably there is a course of bond bears suggesting that interest rates are going to the moon and I think it’s a great time to step back and say what is priced into markets and what are forward markets expecting because like every other markets the bond market are forward -looking,” he said.
Looking at the forward curve, investors could see that three additional interest rate hikes had been already priced in by FED and looking at Australia one hike was expected the Reserve Bank of Australia (RBA) by the end of this calendar year.
Mead also stressed that owning bonds as a global bond portfolio in Australian portfolio, in an Australian asset allocation, helped generate 25 percentage points of positive return over the past four years.
“So, we think again – don’t be spooked by some of this negative sentiment in the media, stick to your portfolio discipline, lowly correlated or maybe even negatively correlated bond asset class and we will continue to be there to provide your portfolio with income, provide your portfolio with capital protection, and also importantly as we’ve seen in the past few days when risk assets are really under pressure – we’d expect some of this negative correlation to really kick I,” he said.
