Pimco: US faces real risk of outright deflation

US DEFLATION?

Pimco, the world's biggest bond fund manager, has warned the US faces a prolonged period of stagnant growth and a real risk of outright deflation, similar to what Japan experienced in 1990s.

Echoing a warning by M&G's bond team on Monday, Pimco portfolio manager Scott Mather says if a Japan-like deflationary scenario becomes the baseline for the US, it would have "profound implications for asset prices". Mather says there are uncomfortable similarities between the two countries. "There are striking similarities between the US and Japan with respect to fundamental causes of the crisis. Both economies experienced rapid growth in debt, which fuelled bubbles in real estate, residential and commercial, and equity markets," he says. "Income did not grow fast enough to servic...