Pimco Warns That Central Banks Can’t Rescue the Bond Market
They lack the “firepower” to suppress volatility, the fixed-income giant says in a new forecast.
Dan Ivascyn, chief investment officer of Pimco, is bearish on the outlook for corporate credit markets.
Photographer: Kyle Grillot/BloombergPacific Investment Management Co. has a new secular outlook. Suffice it to say, the fixed-income behemoth isn’t looking at the debt markets through rose-colored glasses.
“We have probably the riskiest credit market that we have ever had,” said Scott Mather, chief investment officer of U.S. core strategies at Pimco. It’s like before the financial crisis, he said. “We see it in the buildup in corporate leverage, the decline in credit quality, and declining underwriting standards — all this late-cycle credit behavior we began to see in 2005 and 2006.” Meanwhile, ever-popular collateralized loan obligations will bear the brunt of losses in leveraged loans when the business cycle turns, according to portfolio manager Beth MacLean. And to top it off, the U.S.-China trade war is poised to cut into already decelerating global growth, noted Tiffany Wilding, Pimco’s U.S. economist. A recession in advanced economies might be in the cards in the next three to five years, the period covered in the firm’s outlook.