Though inflation pressures remain fairly muted for now, Pimco believes it's time for investors to prepare for what's ahead.
The bond giant, which manages just under $2 trillion in assets, advised clients this week to begin putting money into Treasury Inflation Protected Securities as a hedge for price pressures ahead.
Known more commonly as TIPS, the bonds in a fairly quiet manner have been the fourth-best performing asset class in fixed income for 2014. TIPS have returned 6.4 percent so far, barely trailing the 6.6 percent for municipals. Preferreds led the way in the first half with an 11.9 percent return, while emerging market sovereign bonds gained 8.3 percent, according to Bank of America Merrill Lynch Global Research Bond Indices data.
By contrast, TIPS were the worst-performing group in 2013, losing 9.4 percent during an awful year for fixed income.
Pimco does not expect a huge surge in inflation but believes that the level over the next year will exceed the 2 percent target the Federal Reserve has set before it will consider raising interest rates.