PIMCO Plans to Diversify Government Bond Exposure Amid Bearish Outlook
PIMCO, a $2 trillion bond-focused asset manager, announced plans to diversify its government bond exposure by investing in securities outside the United States. The decision comes as the company has turned bearish on long-term government debt due to concerns over a deteriorating fiscal profile and potential inflationary pressures.
In a report, PIMCO cited a “deteriorating fiscal profile” and “potential inflation catalysts” such as tariffs and immigration restrictions on the labor force as reasons for its bearish outlook on long-term government debt. The company believes that the potential for higher inflation and additional debt issuance to fund deficits has led it to “be more hesitant to lend longer term.”
PIMCO is instead favoring short-term and intermediate U.S. Treasuries, and has reduced its allocations to long-dated U.S. government debt securities. The company is also investing in UK and Australian bonds due to their better fiscal positions.
Furthermore, PIMCO is lending to corporates in both public and private markets that are better positioned to withstand high interest rates, which could be a consequence of high government debt levels. The company believes that the U.S. remains in a unique position due to its global reserve currency status and the use of Treasuries as the global reserve asset, but believes that excessive debt issuance could ultimately lead to lenders questioning the government’s ability to pay back its debt.
PIMCO’s decision to diversify its government bond exposure is the latest sign of a growing trend, as investors increasingly turn away from long-term government debt and towards other investment opportunities. As a result, the 10-year Treasury yield has fallen back after reaching 5% last year, following concerns over growing U.S. debt issuance.