Pimco Warns Risk of Policy Mistakes From Central Banks Is Rising
- Inflation risk premium isn’t fully priced in the bond market
- Long-dated Treasuries can still help diversify portfolio risk
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The danger of a central bank policy mistake has increased, but the bond market isn’t fully reflecting the appropriate inflation risk premium, according to one of the world’s largest bond investors.
Fading monetary and fiscal stimulus next year and efforts by authorities “to engineer a growth handoff to the private sector” create a higher risk “of a policy mistake,” according to the asset allocation outlook published Tuesday by Pacific Investment Management Co. A more volatile macro climate raises the prospect of fatter tail risks, meaning larger positive or negative outcomes for investors.