Forget the stock market or private credit. Fixed income will outstrip other asset classes after “a generational reset higher in bond yields,” according to Pacific Investment Management. “Active fixed income is positioned to perform well if there are no recessions over our secular horizon and to perform even better if there are,” Pimco’s Richard Clarida, Andrew Balls and Daniel Ivascyn wrote in an outlook released Tuesday. As prices climb and inflation recedes, they expect bonds will be even more attractive than cash.
Can you offer some guidance/thoughts on this? I’m a growth investor primarily in stocks, and not familiar with bonds.
Can we benefit from some torque? What would be your top ETF plays in this?
Bonds performed exceptionally poorly in the rate-hike cycle, and if not for a late 2023 rally would have declined three years in a row, which has never happened, ever. If rates drop to pre-covid levels, which is possible in a recession (less likely without) the leverage to the upside in bonds (generally) would be very good. We are not so sure it would be 'better' than stocks, as stocks react to lower rates as well, especially growth stocks. Long bonds have the highest leverage to rates (both ways). For an investor in this theme, we would suggest TLT in the US and XLB in Canada. Note, Canada cut rates today, so here at least the process has started. BUT...many investors still believe in the 'higher for longer' rate outlook, and until recently bond investors have continued to struggle. In other words, like with equities, there are no guarantees. But we would certainly be comfortable having some bond exposure right now.