Pimco Push to Boost Treasuries Wager Confronts $500 Billion Foe

  • Pimco drops its underweight position on U.S. government debt
  • Asset Management One’s Takei sees curve steepening ahead

Pacific Investment Management Co. says it’s a good time to add exposure to U.S. government bonds. A $500 billion investor in Japan says the better move is to cut back.

Pimco is seizing on higher yields just as a flood of supply hits the market. Yet the firm with the world’s biggest actively-run bond fund sees rate risks subdued by tame inflation, creating an appealing entry point.

“We think a lot of this move has occurred,” Mark Kiesel, chief investment officer for global credit at Newport Beach, California-based Pimco, said in a Bloomberg TV interview. “We had been underweight interest-rate risk for a long time and we’re turning more neutral now.”

Across the Pacific in Tokyo, Akira Takei at Asset Management One Co. is selling longer-maturity debt and buying five-year notes. For years, Takei benefited from loading up on duration as yields tumbled, so the shift is a sea change for him.

“I’ve been saying in the past few years that the Treasury curve would flatten,” said Takei, a bond investor at Asset Management One, which oversaw $509 billion as of the end of September. “But now I see a major turning point in the coming few months.”

Read more: Treasuries at a tipping point

The debate over the direction of U.S. government bonds is roaring as benchmark 10-year yields approach 3 percent for the first time since the start of 2014. While the Federal Reserve said it sees momentum in the economy, inflation that’s stuck below the central bank’s 2 percent target suggests the era of low yields that followed the global financial crisis has further to run, according to Geraldine Sundstrom, a London-based managing director at Pimco.

“We are still very much in the new neutral where rates will be lower than in the previous cycle and inflation is still unlikely to go up dramatically much beyond the Fed’s 2 percent target,” she said in a phone interview.

— With assistance by Masaki Kondo, Vonnie Quinn, Nejra Cehic, and Boris Korby

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