The world's largest actively managed fixed-income fund has scaled back its positions in government debt, according to a report published by the Financial Times on Tuesday, citing fears that a breakthrough in U.S.-China trade talks could spark a dramatic market sell-off.
Dan Ivascyn, chief investment officer of Pimco group, reportedly said that while he remains confident bond yields will remain relatively low over the coming months, the power of the market rally over the summer had shifted the balance of risks.
"We are lot a more defensive… Even if we get a narrow trade agreement (between the U.S. and China) we could see a pretty powerful snapback in yields," Ivascyn said in an interview, as reported by the Financial Times.
His comments come at a time when many investors expect government bond yields to continue to sag lower, with major economies seen pushing through a fresh wave of stimulus to temper anxiety about a global recession.
Several big Pimco funds controlled by Ivascyn, including Pimco Income Fund, have been trimming their bond market positions in the U.K. and Europe, the report said. They have also pared their respective positions in the U.S., but to a lesser extent.
"We like the U.S. market more — it still has more room to rally in a global flight to safety," Ivascyn said, before adding: "But, it wouldn't take much of an uptick in inflation to cause a meaningful repricing."
The Pimco Income Fund — with assets of more than $130 billion — is lagging behind 93% of its category so far this year, Reuters reported, citing Morningstar data as of Saturday.
Read the Financial Times' full article here.