Pacific Investment Management Co.’s Dan Ivascyn and Mark Kiesel say 3% yields on 10-year Treasuries may be a signal to buy rather than the beginning of a bond bear market that other managers have warned about.
“There’ll be buyers of bonds if we back up to 3%,” Kiesel, Pimco’s chief investment officer specializing in credit, said during an interview at the firm’s Newport Beach, California, headquarters on Wednesday. “I’d consider buying bonds at that level, getting less defensive.”
Managers including DoubleLine Capital CIO Jeffrey Gundlach and Guggenheim Partners CIO Scott Minerd have said 3% rates on the 10-year would signal a bond bear market. The bull run remains intact unless the 3% level is broken, Minerd said in January, adding that the lows could be retraced before “a generational bear market” starts. “If you get above 3%, then it’s truly, truly game over for the ancient bond bull market,” Gundlach said on a Jan. 9 webcast.
The 10-year Treasury yield was at 2.73% as of 10:22 a.m. Thursday in New York, having briefly risen to a three-year high above 2.7519% on Wednesday. Yields have been rising because of global economic strength, central banks moving toward winding down their years of unprecedented bond buying and a climbing U.S. deficit.
Benchmark rates have jumped from last year’s low of 2.0387% on Sept. 7. Bond prices fall when yields climb.
Janus Henderson Group PLC’s Bill Gross has said a mild bond bear market was actually confirmed in early January, when the 10-year passed 2.5%.
“I wonder who will buy, you know, the current level of bonds relative to what has happened in the past,” Gross, Pimco’s CIO until 2014, said Wednesday in an interview on Bloomberg Television.
Amid concerns about rising yields, Pimco funds have taken less duration risk than the Bloomberg Barclays US Aggregate Index, a common benchmark for intermediate-term bond funds. Pension funds, insurers and the firm’s clients may seek to add U.S. debt holdings to temper the volatility of stocks and benefit from the income component, Kiesel said.
Buyers will also flock to Treasuries as a haven if economic growth weakens, according to Ivascyn, who succeeded Gross as Pimco’s top CIO.
“They can get up to 3% or they can cross 3%,” Ivascyn said. “Any type of negative shock, geopolitical event, any signs of economic slowing we think can be accompanied by a significant rally in Treasuries.”
Pimco oversaw $1.75 trillion, mostly in fixed-income assets, as of Dec. 31.
—With assistance from Tom Keene.
— Read Bill Gross, Pimco Settle Lawsuit for $81M on ThinkAdvisor.