But these expectations aren’t reflected in economic data on the ground right now, and some policymakers have indicated they may let inflation run hot for a while before acting.
Here are more of Mead’s views on the subject:
“A number of central banks have been a little more explicit around allowing inflation to get back to their targets before they would do anything.
The way we would express that in a portfolio position would be through thinking about yield curve shape rather than large positions to be overweight or underweight interest-rate risk.
Everything that we’ve said is also supportive of emerging-market assets.
The Fed positioning, what we’re seeing in capital flows, the fundamental improvement, the eventual vaccine roll-out—all of those things may be delayed in some emerging economies and much more rapid in others, which again as active managers gives us opportunities.”
While central bank support remains at full throttle, Pimco also favors Australian semi-government debt maturing in five-to-seven years.
Mead likes them as part of a roll-down strategy.
The firm can buy the securities at a higher yield and hold them until they have rolled down to the three-year mark, which is where the Reserve Bank of Australia keeps bond yields pinned as part of its yield curve control program.
Pimco likes Australia semi-government debt even as yields dive. The money manager favors them even though much of the sector’s spreads to government bonds have narrowed to historically tight levels.
“We don’t think that’s a mispriced asset,” Mead said.
The sector’s attractiveness comes in part because of ultra-low cash rates. In stark contrast to 2008 when Australia’s interest rate sat at 7.25%, borrowing costs are now at a record-low 0.10%.
This means asset managers can no longer afford to be “lazy” and leave their cash sitting idle, while spread products still present some opportunities, he said.
“The opportunity cost of doing nothing is so high,” said Mead. “It means that we’re looking at every little opportunity that materializes and trying to take advantage of that for clients.”
This article was provided by Bloomberg News.