More Attractive Conditions May Lie Ahead
Going forward, we expect the financing market for equity futures to be favorable. With higher market volatility and elevated equity valuations, demand for long and short equity exposure should be more balanced, decreasing upward pressure on financing costs. In addition, recent trends toward relaxing bank regulation will likely ease funding pressures over the medium term.
(Of course, it is important for investors to monitor the evolution away from Libor as described in “So Long, Libor: Transition Is Underway to SOFR and Other Alternative Reference Rates”)
We believe capital-efficient strategies that incorporate equity futures may be valuable in the low-return environment ahead.
Laura Graff is an equity strategist in PIMCO’s Newport Beach office.