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Text on screen: Yield Matters: A Fresh Look at Core Bonds

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Rich: It's really striking when you come to think about it. For most of the decade before the pandemic, rates were pinned at zero or even negative in the Eurozone.

Text on screen: Richard Clarida, Global Economic Advisor

One big difference from the pre-pandemic period is yields are at attractive levels, both in absolute terms and relative to the prospects for even sticky inflation. And in the context of a global economy that's held in and the US economy that's over delivered in terms of resilience.

Text on screen: Mohit Mittal, CIO Core Strategies

Mohit: We have to go back to comparisons well before the GFC to see the kind of yields that we are seeing right now in core markets.

Rich: But on a going forward basis, we do expect to see some more differentiation, the US being more resilient in terms of activity, maybe with somewhat stickier inflation European economies slowing more transmission mechanisms for policy operating differently.

And those have consequences, not just for rates, markets, but also in credit and in currencies

Text on screen: Daniel J. Ivascyn, Group Chief Investment Officer

Dan: And I look at it just across the industry, people left core bonds, whether you're talking about US focused strategies or global strategies, because coming out of the global financial crisis, yields got real low.

Text on screen: High quality core bonds:, BULLETS - Attractive yields, Less volatility than equities, Equity-like return potential

Images on screen: Stock market ticker, PIMCO trade floor

And then to your point Rich, not only are yields attractive we believe yields can be a good predictor of longer term fixed income returns.

So when we look at value within good old fashioned core and core plus bond strategies they look good versus cash, and they look pretty good versus public equities on a risk-adjusted basis.

Mohit: I think when investors think about core, they try to utilize it for essentially a couple of reasons.

One is getting high quality yield in a more kind of a volatility adjusted manner.

And on that measure as you have essentially an environment where you're getting equity-like return possibilities with the volatility that is one third or one fourth of the equity markets.

Rich: For a fraction of the volatility.

Mohit: Yeah, 1/4^th of the equity markets

And then on the, I think the active part as well, right?

Using the breadth of resources, using the opportunities that Rich also talked about, allows us to kind of take advantage of, or at least focus on some of those non-US opportunities as well in the US core context, again, in a small size, not deviating from the true intent of the strategy, but helping utilize those to create excess return.

Dan Ivascyn: In terms of the decision-making frameworks a lot of what we're doing is what we've been doing at PIMCO for several decades.

Text on screen: 280+ Portfolio managers, 80+ Credit research analysts, 23 Global offices

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We have resources around the globe covering every sector of that market. So, in some sense, it's really as simple as leveraging the great ideas across the platform, consistent with our top down themes.

Rich: And I think one thing I've noticed in my time here is how oftentimes what starts as a macro conversation naturally moves into a sectoral conversation. So, it's not just top line GDP, it's policies, Washington, regulation of financial institutions creates sectoral winners and losers.

And probably we're seeing more of that in the current US macro environment than we've seen in a very long time.

Dan: I think now we have

Text on screen: Total Return Strategy Portfolio Managers: Mohit Mittal, CIO of Core Strategies , Daniel J. Ivascyn, Group CIO, Qi Wang, CIO of Portfolio Implementation, Mark Kiesel, CIO of Global Credit

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a lot of tight interactions both within the team looking at ideas that are relevant to the total return strategy itself.

So, I haven't been as excited in a long time to work with you on this strategy and to take advantage of what looks like, again, not only in an attractive world in terms of starting yields, but that type of volatility across markets that typically is consistent with pretty good alpha generation as well.

Mohit Mittal: Yeah, working with Dan over the last 18 months has been incredibly kind of rewarding as well. Dan brings a unique perspective with having run income for over 15 years.

Dan Ivascyn: To join the core team, Core is in the firm's DNA. And it's a strategy that's critically important to us, and it's critically important to us because it's critically important to our clients.

Mohit: And then, as you also alluded to, the value proposition has increased immensely given the backup in yields, given the yields that we are currently seeing that we have not seen in well over you know, 17, 18 years. So, the value proposition plus the excitement around the team is, you know, is something that I'm quite excited about on a go forward basis.

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Disclosure

Past performance is not a guarantee or a reliable indicator of future results.

All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Mortgage and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market’s perception of issuer creditworthiness; while generally supported by some form of government or private guarantee there is no assurance that private guarantors will meet their obligations. High-yield, lower-rated, securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. Management risk is the risk that the investment techniques and risk analyses applied by an investment manager will not produce the desired results, and that certain policies or developments may affect the investment techniques available to the manager in connection with managing the strategy.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

Alpha is a measure of performance on a risk-adjusted basis calculated by comparing the volatility (price risk) of a portfolio vs. its risk-adjusted performance to a benchmark index; the excess return relative to the benchmark is alpha. Global Financial Crisis (GFC).

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