PIMCO thinks the bond market is going to be wrong.
According to Bloomberg, PIMCO portfolio manager Mihir Worah told reporters in Sydney that, “We think the U.S. Fed goes in September … The market is pricing about a 30 or 35 per cent probability. We think it’s closer to 70 to 75 per cent. The U.S. Fed wants to get off zero.”
Worah added that the one of the firm’s “most dominant interest-rate positions is an underweight to the front end.”
Short term yields — or the “front end” of the curve — are the most vulnerable to interest rate movements, and tend to move in tandem with interest rates and expectations for the direction of interest rates. PIMCO is staying away from this part of the bond market.
Going into 2014, investors anticipated that yields would rise because the Fed was preparing to raise rates, first by ending its bond-buying program.
Everyone was stunned when instead of rising, yields fell instead through the year.
And the reverse seems to be happening now, where the bond market is not betting on an imminent rate hike, when perhaps, they should.
Traders are betting the Fed will raise rates for the first time in 7 years in December; one month ago, their bet was for a September hike, according to Bloomberg.
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