Pimco Says Short-Term Bonds
Pimco recently published the article, "Steering Away From Volatile Markets: Short-Term Bonds May Offer Value As Fed Eases." Author Jerome Schneider writes, "Market volatility in August and September created one of the bumpiest rides for investors since the financial crisis. With lingering uncertainties over trade and economic growth, volatility is likely to persist, and investors are responding by reducing portfolio risk. Many turned to money market funds to wait out market volatility. At today's low yields, however, that could have a significant effect on longer-term portfolio returns: Historically, during similar periods, many investors stayed in money market funds for much longer than a few months – typically for two years or more. Investors who can tolerate a modest step up in risk may find an attractive alternative in high quality short-term bonds. We think short-term bonds are likely to perform well in the coming months." He continues, "For decades, investors have turned to regulated money market funds when shifting to defense, and this time is no different. After the volatile fourth quarter in 2018, money market assets have increased by more than $350 billion this year ... according to the `Investment Company Institute. If history is any guide, money market assets could remain elevated for some time." The article adds, "Strategies that invest in short-term bonds may provide a structural return advantage above money market yields because they have greater flexibility to invest in higher-yielding securities outside the regulated money market universe of U.S. Treasury bills and short-term government securities. These strategies typically include bonds with slightly longer maturities and moderately higher credit risk. With this flexibility, actively managed short-term strategies seek higher yields and the potential for capital appreciation."
