The first interest-rate cut from the world’s biggest central banks will embolden investors still cautious about stepping back into the bond market and trigger a “flood” of inflows, according to PGIM.

Taimur Hyat, chief operating officer at the firm, said clients are ready to pounce on debt, having parked money in cash and short-dated investments during a decade of near-zero yields. While the prospect of rate cuts is enticing some to buy, many are on hold until they see policy easing materialize, Hyat said. 

They “want to see actual concrete evidence of rate declines,” said Hyat in an interview with Bloomberg Television. Inflows to bonds are “just going to turn into flood when all the central banks are going in the same direction,” he added.

Investors have been wary of going all-in on bonds after a massive hawkish repricing in rate-cut bets at the start of the year caught many by surprise, sending the 10-year Treasury yield closer to a two-decade high of 5%.

The current market expectation is for the Federal Reserve to deliver one or two quarter-point rate cuts this year, likely starting in November. The European Central Bank is seen cutting rates next month and once or twice more by December, according to swaps. For the Bank of England, bets favor a first cut in September, with a small chance of a second by the end of the year.

Expectations that Fed rate cuts will be slower and smaller when they finally begin mean that short-term investment-grade debt offered a good buying opportunity, said the COO at PGIM, which has $1.3 trillion in assets under management.

Hyat’s outlook chimes with the view held by Pacific Investment Management Co, which is positioning for the Fed to cut rates less than the ECB and the BOE.

This article was provided by Bloomberg News.