Economic and Market Commentary

Higher Yields Today Create Opportunity

Explore various ways investors can take advantage of today’s higher bond yields and attractive return potential.

Learn more in the latest cyclical outlook

More from this section

Read Transcript

Text on screen: PIMCO

Footer Overlay: PIMCO provides services only to qualified institutions, financial intermediaries and institutional investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized.

Text on screen: Ken Chambers, Fixed Income Strategist

Ken: Let's talk about the yield environment. Government bonds as well as spread asset classes continue to have elevated levels of yield. At the same time, we have Fed officials talking about a higher rate environment for longer. What does that mean for the bond market as we move forward?

Text on screen: Marc P. Seidner, CIO Non-traditional Strategies

Marc Seidner: Ken, it really depends on your time horizon, first and foremost. I mean, the good news is fixed income investors, and I don't want to overplay this,

FULL PAGE GRAPHIC – Today’s yields are at a much higher starting point

The bar chart shows yield to worst maturity (YTM) for various fixed income asset classes have moved significantly higher as of September 30, 2023 from December 31, 2021 levels. Fixed income asset classes included in the chart are U.S. Core with 5.4% YTM as of September, Global Aggregate with 5.6%, Agency Mortgage Backed Securities with 5.5%, AAA Securitized Bonds with 6.3%, Municipal Bonds with 7.3%, Investment Grade Credit with 5.9%, High Yield Credit with 8.2%, and Emerging Market Bonds with 7.1%.

but your starting point of yield is highly predictive of your future return.

So in some regards, while the economic environment is increasingly uncertain, and while there are elements across a wide range of possible outcomes that are currently embedded in economic outlooks, the starting point of yields make it easier if you've got a long enough time horizon.

And to take that point even further, there's something for almost everyone to do in the bond market today, right now. Whether you have a risky portfolio and you're trying to hedge against possible left tail or negative economic scenarios,

FULL PAGE GRAPHIC - Investing today: Pivoting to fixed income

The chart shows three characteristics of fixed income, namely Predictability, Resiliency, and Flexibility.

the starting point of a 4.6%, 10-year treasury note potentially gives you a lot of downside protection if economies turn into a more negative scenario, like we expect, or even a more nefarious type of scenario. If you're looking for a starting point of attractive yield, core and intermediate fixed income is there. I mean, you're offering 6%, 6.5% type of income levels, which is historically quite attractive.

If you are not certain about the level of yields and think rates could continue to go higher for a period longer, short and intermediate maturity bonds offer very attractive ways of locking in current levels of cash rates for at least the next two or three years. The problem with cash right now is it could go away real quick. A 5.25%, sort of, deposit rate or short-term interest rate looks really good right now, but a year from now, that could be substantially lower than it is. That's one possible scenario. If you're worried about a more sticky inflation scenario, the real yield on a 10-year inflation protected bond gives you a starting point of 2.3% plus inflation. And the breakeven inflation rate's only expected to be 2.25% or 2.33%.

I mean, I don't want to sound like a bond manager who likes bonds too much but I will sound like a bond manager who likes bonds quite a bit.

FULL PAGE GRAPHIC: U.S. equities: Expensive relative to bonds versus last decade

The line chart shows estimates for U.S. equities’ earnings yield in the next 12 months, as measured by the S&P 500 Forward Earnings yield (green line), which fell from approximately 7.8% in 2013 to approximately 5.8% as of September 30, 2023, while BBB Credit Yield, as measured by the yield to worst maturity for the Bloomberg U.S. Aggregate: Baa Index (blue line) rose from approximately 4.8% in 2013 to approximately 6.2% on Sept. 30, 2023. The Spread (red line) fell from approximately 5% in 2013 to approximately -1.0% on September 30, 2023.

When we look at the opportunity set across the asset allocation environment, we do think bonds offer much more attractive potential returns than investment opportunities further down the capital structure, including equities. From a simple valuation perspective, the earnings yield on the S&P 500 is now lower than the all-in yield of the triple-B rated corporate index. When you can move up in quality, move up the economic capital structure and have a potentially higher return, that does guide us to liking the fixed income opportunity set more than opportunities in equities right now.

Text on screen: For more insights and information, visit pimco.com

Text on screen: PIMCO

Disclosure


This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517, 11 Baker Street, London W1U 3AH, United Kingdom) is authorised and regulated by the Financial Conduct Authority (FCA) (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963, Corso Vittorio Emanuele II, 37/Piano 5, 20122 Milano, Italy), PIMCO Europe GmbH Irish Branch (Company No. 909462, 57B Harcourt Street Dublin D02 F721, Ireland), PIMCO Europe GmbH UK Branch (Company No. FC037712, 11 Baker Street, London W1U 3AH, UK), PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E, Paseo de la Castellana 43, Oficina 05-111, 28046 Madrid, Spain) and PIMCO Europe GmbH French Branch (Company No. 918745621 R.C.S. Paris, 50–52 Boulevard Haussmann, 75009 Paris, France) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 15 of the German Securities Institutions Act (WpIG). The Italian Branch, Irish Branch, UK Branch, Spanish Branch and French Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) (Giovanni Battista Martini, 3 - 00198 Rome) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland (New Wapping Street, North Wall Quay, Dublin 1 D01 F7X3) in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; (3) UK Branch: the Financial Conduct Authority (FCA) (12 Endeavour Square, London E20 1JN); (4) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) (Edison, 4, 28006 Madrid) in accordance with obligations stipulated in articles 168 and 203 to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively and (5) French Branch: ACPR/Banque de France (4 Place de Budapest, CS 92459, 75436 Paris Cedex 09) in accordance with Art. 35 of Directive 2014/65/EU on markets in financial instruments and under the surveillance of ACPR and AMF. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. | PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2, Brandschenkestrasse 41 Zurich 8002, Switzerland). The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (8 Marina View, #30-01, Asia Square Tower 1, Singapore 018960, Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited (Suite 2201, 22nd Floor, Two International Finance Centre, No. 8 Finance Street, Central, Hong Kong) is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Investment Management (Shanghai) Limited. Office address: Suite 7204, Shanghai Tower, 479 Lujiazui Ring Road, Pudong, Shanghai 200120, China (Unified social credit code: 91310115MA1K41MU72) is registered with Asset Management Association of China as Private Fund Manager (Registration No. P1071502, Type: Other). | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. To the extent it involves Pacific Investment Management Co LLC (PIMCO LLC) providing financial services to wholesale clients, PIMCO LLC is exempt from the requirement to hold an Australian financial services licence in respect of financial services provided to wholesale clients in Australia. PIMCO LLC is regulated by the Securities and Exchange Commission under US laws, which differ from Australian laws. | PIMCO Japan Ltd, Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association, The Investment Trusts Association, Japan and Type II Financial Instruments Firms Association. All investments contain risk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is an independently operated and managed company. The reference number of business license of the company approved by the competent authority is (112) Jin Guan Tou Gu Xin Zi No. 015 . The registered address of the company is 40F., No.68, Sec. 5, Zhongxiao East Rd., Xinyi District, Taipei City 110, Taiwan (R.O.C.), and the telephone number is +886 2 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world. ©2023, PIMCO.

CMR2023-1102-3209195

Filters: Reset All

Filters

Close Filters Dropdown
  • Tags

    Reset

    Close
  • Category

    Reset

    Bond by Bond
    Careers
    Economic and Market Commentary
    Investment Strategies
    PIMCO Foundation
    PIMCO Education
    View from the Investment Committee
    View From the Trade Floor
    Viewpoints
    Education
    Close
  • Order By

    Reset

    Alphabetical
    Most Recent
    Close
() filters applied

Multimedia Finder

Filter By:
  • Bond by Bond
  • Careers
  • Economic and Market Commentary
  • Investment Strategies
  • PIMCO Foundation
  • PIMCO Education
  • View from the Investment Committee
  • View From the Trade Floor
  • Viewpoints
  • Understanding Investing
  • A
  • B
  • C
  • D
  • E
  • F
  • G
  • H
  • I
  • K
  • M
  • N
  • P
  • R
  • S
  • T
  • W
  • Y
  • Z
Clear
Berdibek Ahmedov
Product Strategist
Andrew Balls
CIO Global Fixed Income
Justin Blesy
Asset Allocation Strategist
Meredith Block
ESG Research Analyst
Marcio Bogoricin
Head of Global Wealth Management, Asia ex Japan
Allison Boxer
Economist
David L. Braun
Portfolio Manager
Jelle Brons
Portfolio Manager, Global and U.S. Investment Grade Credit
Nathaniel Brown
Director of the PIMCO Foundation
Erin Browne
Portfolio Manager, Asset Allocation
Grover Burthey
Portfolio Manager, ESG
Libby Cantrill
U.S. Public Policy
Yishan Cao
Credit Research Analyst
Kenneth Chambers
Fixed Income Strategist
Stephen Chang
Portfolio Manager, Asia
Richard Clarida
Global Economic Advisor
Mathieu Clavel
Portfolio Manager, Alternative Credit
Tony Crescenzi
Portfolio Manager, Market Strategist
Harin de Silva
Portfolio Manager, Special Situations
Pramol Dhawan
Portfolio Manager
Matt Dorsten
Portfolio Manager, Quantitative Strategy
Anna Dragesic
Head of Global Credit Product Strategies
Jason Duko
Portfolio Manager
Devin Ekberg
Senior Consultant, Advisor Education
David Forgash
Portfolio Manager
Preeyam Gandhi
Strategist
Max Gelb
Product Strategist
Nick Granger
Quantitative Portfolio Management
Adam Gubner
Portfolio Manager, Distressed Debt
Jingjing Huang
Strategist
Daniel H. Hyman
Portfolio Manager
Daniel J. Ivascyn
Group Chief Investment Officer
Mark R. Kiesel
CIO Global Credit
Erica Kinsella
Product Strategist, ESG Strategies
Sean Klein
Head of Client Business Strategy – Client Solutions and Analytics
Kristofer Kraus
Portfolio Manager
Jason Mandinach
Head of Alternative Credit and Private Strategies
Kyle McCarthy
Alternative Credit Strategist
Lalantika Medema
Alternative Credit Strategist
Mohit Mittal
CIO Core Strategies
John Murray
Portfolio Manager, Global Private Real Estate
John Nersesian
Senior Consultant, Advisor Education
Roger Nieves
Sonali Pier
Portfolio Manager, Multi-Sector Credit
Georgi Popov
Product Strategist
Gavin Power
Chief of Sustainable Development and International Affairs
Lupin Rahman
Portfolio Manager
Graham A. Rennison
Quantitative Portfolio Manager
Steve A. Rodosky
Portfolio Manager
Jerome M. Schneider
Portfolio Manager
Marc P. Seidner
CIO Non-traditional Strategies
Emmanuel S. Sharef
Portfolio Manager, Asset Allocation and Multi Real Asset
Greg E. Sharenow
Portfolio Manager, Commodities and Real Assets
Kimberley Stafford
Global Head of Product Strategy; Responsible for Sustainability Oversight
Jason R. Steiner
Portfolio Manager, Private Lending and Opportunistic Strategies
Christian Stracke
President, Global Head of Credit Research
François Trausch
CEO and CIO of PIMCO Prime Real Estate
Megan Walters
PIMCO Prime Real Estate
Qi Wang
CIO Portfolio Implementation
Jamie Weinstein
Portfolio Manager, Corporate Special Situations
Paul-James White
Portfolio Manager
Tiffany Wilding
Economist
Jerry Woytash
Portfolio Manager, Short-Term Desk
Nelson Yuan
Kirill Zavodov
Portfolio Manager, Real Estate
Mike Cudzil
Portfolio Manager
PIMCO
Ben Bernanke
Chair, Global Advisory Board
Seray Incoglu
Portfolio Manager, Commercial Real Estate
  • Alphabetical
  • Most Recent
Section : Date : Experts :
Reset All
Beyond the Base Case: Preparing for the Unexpected
The Fed’s Balancing Act
Actionable Alternatives: Synthetic Risk Transfer
Asset-Based Lending 101
The Why and How of Allocating to Asset-Based Lending

Load more results Load {{cCtrl.fetchResults}} more results