Pimco Says Economies Must Fend for Selves in Post-Crisis World

(Bloomberg) -- Global economies are becoming less reliant on central banks and less coordinated, setting the stage for higher volatility a decade after the financial crisis, according to Pacific Investment Management Co.

“Markets will have to stand a lot more on their own,’’ Group Chief Investment Officer Dan Ivascyn said in an interview previewing the firm’s long-term investment outlook set to be published this month. “Economies will have to fend for themselves.’’

The firm forecasts:

  • Greater swings for stocks and bonds. “Small shifts in sentiment can create big bouts of volatility,’’ said Ivascyn, who co-manages the $112.4 billion Pimco Income Fund.
  • There’s a “reasonable chance’’ of a U.S. recession in the next two to three years, according to Ivascyn, whose firm oversaw $1.77 trillion as of March 31.
  • As central banks led by the Federal Reserve reduce accommodation, so-called tail risks are increasing, from tax- and spending-led stimuli on the positive side to political events, like trade wars, on the negative end. 
  • Bond yields, which have climbed steeply in recent months, are unlikely to go significantly higher soon, but investors would be wise to increase short-duration fixed-income holdings. Pimco’s “New Normal” and “New Neutral” frameworks of long-term slow growth and relatively low rates remain in place.
  • The last opportunities from the 2008 crisis are finally closing out as European banks finish cleaning up their balance sheets. Pimco is said to be among the largest buyers of 4.3 billion pounds ($5.8 billion) of Irish residential mortgage notes being sold by Barclays Plc, Bloomberg News reported on May 18.

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