A year or two ago, fixed income investors were facing a combination of high inflation and extremely low yields. Today, the prospects for the asset class are very different. Real yields are now positive across much of the Western world, making fixed income markets look much more attractive.
Passive, high-quality fixed income benchmarks are now offering yields in the region of 5%. And according to Dan Ivascyn, Group CIO at PIMCO, this means that an active bond strategy can look to generate yields upwards of 6% even when sticking to very high-quality assets.
"We think this is a very exciting time for these markets after the recent sell-off," he says. "Things can certainly get worse before they get better, but for an intermediate-to-longer-term investor with income needs, we are very excited about the opportunity set."
Reducing the need for risk
Indeed, it is not just the potential financial returns that make fixed income attractive right now, but the ability to do so with a lower risk profile.
"Those investors that have felt forced or compelled to move into more exotic, less-liquid segments of the market can now return to the public markets that are offering similar yields in very, very high quality and resilient investments," he says.
This preference for lower risk is not only desirable but necessary given ongoing macroeconomic challenges. Ivascyn emphasises that it is premature to try being aggressive in areas of the market that are likely to significantly underperform expectations in the event of a hard landing for the global economy.
For more of Ivascyn's views on the outlook for fixed income investing, read our exclusive guide
