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How Pimco’s Income fund is preparing for rising rates

How Pimco’s Income fund is preparing for rising rates

As rates have risen this year, portfolio manager Alfred Murata has added US duration to the famed Pimco Income fund, though he's keeping his eyes peeled for any inflation surprises.

Murata, who runs the $73.6 billion Pimco GIS Income fund alongside Citywire AA-rated Daniel Ivascyn, said in a strategy update published March 19 that he was emphasizing high-quality countries with relatively higher yields such as the US, but with a caveat.

‘Although we have added US duration to the portfolio, we remain cautious on interest rate risk and have been emphasizing curve positioning, limiting exposure to long maturities that can suffer more from a surprise increase in inflation,’ Murata said. 

Higher than expected inflation in January fueled fears that the US Federal Reserve might hike rates more aggressively, rattling investors.  

On March 16, sister site Citywire Selector reported that the Ucits version of the strategy experienced $860 million in outflows in February amid generalized market volatility. The flows were related to the sell-off  of a total of $667 million within the Bonds - Global Flexible Sector.

Turning to other opportunities, Murata added he’s going long duration on Australian bonds, as they offer a similar yield as the US and a high-quality buffer to loses if there’s a global slowdown. 

In addition, Murata said he’s hedging a potential rise of global yields through a negative duration position in Japan. 

‘If global yields continue to rise, we believe it will put pressure on the Bank of Japan to revisit its yield curve targeting program and allow yields to rise,’ Murata said.

 

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