Where PIMCO is investing as recession looms

2022 will be a hard year to forget for followers of bond markets. The 13% fall in US Core Bonds is the worst year ever for the asset class and is only the fifth time bonds have delivered a negative return since records started in 1976.

Aggressive interest rate tightening following abnormally loose monetary policy ravaged bond markets in 2022. The extreme pain felt in 2022 has set up one of the best scenarios for bonds in decades, according to PIMCO Portfolio Manager Adam Bowe.

“In terms of the environment and the opportunity set in bonds around the world it is about as rich as it has been in decades,” Bowe says.

Unfortunately, the rosy outlook for bond markets coincides with a harsh economic reality as recessions in the United States and Australia become more likely. Bowe explains that we’re now in ‘the zone’ where the full effect of tighter monetary conditions will start to bite, and the next leg will be painful - especially in Australia.

In this interview, Bowe shares PIMCO’s view on the economic backdrop, recession scenarios for the US and Australia and what that means for bond investors. 

He also talks about a selection of the opportunities that PIMCO has identified across fixed-income markets and the one thinking that keeps him up at night.

Watch the interview by clicking on the player below or read an edited transcript below.

Topics discussed

• 0:00 - Introduction
• 1:03 - PIMCO’s view on the current economic backdrop
• 1:49 - Have we felt the full effect of policy tightening?
• 3:26 - Recession probabilities for the United States and Australia
• 6:51 - When rate hikes start to bite
• 8:40 - Why recessions are good for bonds
• 9:47 - The most-attractive opportunities in bond markets
• 13:51 - What keeps Adam Bowe up at night?

Today's uncertainty demands an income expert

For more than 50 years, PIMCO has been creating fixed income strategies designed to provide attractive income and withstand periods of market stress. To learn more, please visit their website.