The Trump administration and the Republican-controlled Congress are unlikely to produce sweeping tax or regulatory reform, according to Dan Ivascyn, global chief investment officer for Pacific Investment Management Co. Infrastructure spending will also be muted, he said.
“You’ll probably get some tax reform and it will more likely resemble a tax cut as opposed to broad-based reform,” Ivascyn said Wednesday at the Bloomberg Invest New York summit. Tax changes will likely be “well pared down by what’s been proposed” because Congress will be focused on revenue, he said.
With infrastructure, “we’re even more pessimistic,” he said. “There may be something done symbolically, but it’s going to be a lot smaller than the $1 trillion that’s been mentioned.”
The fund manager — whose $85.8 billion Pimco Income Fund has outperformed 99 percent of its Bloomberg peers over the past three and five years — also said investors’ return assumptions need to come down. U.S. growth will likely be in the mid-2 percent range and, given the current global fiscal and geopolitical risks, the 10-year Treasury could fall as low as 1.5 percent, he said.
“Yields can go very low, certainly 1.5 percent,” Ivascyn said in an interview taped Wednesday for Bloomberg TV. “There absolutely are scenarios where U.S. yields can go well below 2 percent — any type of shock to the global economy, any type of geopolitical event that leads to deflationary fears returning.”
U.S. 10-year treasuries were trading at 2.18 percent Wednesday, down from a high of 2.63 percent on March 13.