Newport, Calif.-based Pimco has just issued its second-quarter outlook on the markets. The firm says it will "retain an emphasis on assets at the top of the economy's capital structure."
In terms of interest-rate exposure, the bond-fund shop is positioning itself slightly overweight with respect to duration in the United States and Europe. With rates expected to stay low, "We will likely retain yield-curve steepening strategies."
Pimco managers do want to take advantage of attractively priced assets, such as high-quality agency mortgage pass-throughs and upper-tier non-agency mortgages and consumer asset-backed bonds, "which should get a boost from the Term Asset-Backed Securities Loan Facility."
As for credit, it plans to focus on non-cyclical defensive industries that may outperform in the weak-growth environment. This includes telecom, health care, pharmaceuticals, cable and regulated industries (such as utilities and pipelines).
Pimco says it isn't ready to invest in high-yield corporate bonds and views Treasury Inflation Protected Securities and municipal bonds as "prudent allocations."
Overseas, it may "look to add attractively priced high-quality credits such as Brazil and Mexico to its modest emerging market allocation as the credit markets begin to recover."