Friday, July 1, 2016

"Pimco Says Market Underestimates Fed Rate Path, Recommends TIPS"

We have been fans since around February when the realization that "Saaay, these things might work for both inflation and for slow growth environments".  We may be slow but eventually we do catch on.
Here's the largest of the TIPS ETFs via FinViz:

TIP iShares TIPS Bond daily Stock Chart

From Bloomberg:

Updated on
  • TIPS return 6.6% in first half, versus 5.7% for nominal bonds
  • Gauge of inflation expectations falls to record after Brexit
Pacific Investment Management Co., which manages the world’s biggest active bond fund, says traders are underestimating the potential for the Federal Reserve to raise interest rates following Britain’s decision to leave the European Union.

The bond firm also says it’s a good time to buy Treasury Inflation Protected Securities. It has been recommending TIPS throughout 2016. The securities returned 6.6 percent in the first half, versus 5.7 percent for the broader market, based on Bank of America Corp. data. Financial markets don’t expect a rate increase until the end of 2018, according to a Pimco report Thursday on the company website.

“That to us seems implausible and we think it worth positioning for a faster pace of tightening,” Andrew Balls, the London-based chief investment officer for global fixed income, wrote in the report. “U.S. TIPS are attractively priced and offer valuable protection against the possibility of higher U.S. inflation over the coming years.”

Treasury 10-year note yields fell two basis points to 1.45 percent as of 6:50 a.m. in London, according to Bloomberg Bond Trader data. The price of the 1.625 percent security due in May 2026 rose 6/32, or $1.88 per $1,000 face value, to 101 19/32. Japan’s 10-, two- and five-year yields as well as Taiwan’s 10-year yields slid to record lows.

Abandoning Bets
The Pimco Total Return Fund, the biggest actively managed bond fund with $86.1 billion in assets, has returned 4.3 percent over the past year, lagging behind about 60 percent of its peers, based on data compiled by Bloomberg.

Traders abandoned bets for the Fed to raise rates in 2016 after the U.K. voted last week to leave the EU, raising speculation the decision will curb economic growth in Britain and around the world....MORE
HT: Across the Curve

"U.S. Sells 5-year TIPS at Negative Yield"
Consumer Inflation Comes In Lower Than Expected, TIPS Fall Like Cherry Blossoms In Gentle Spring Rain (TIP)
"TIPS Are King in Good Quarter for U.S. Fixed Income"
"Janet Yellen reiterates need for interest rates caution" (TIP)
The Fed Is Going to Let Price Inflation Run Hot
Bring On the Stagflation: "Atlanta Fed’s ‘GDP Now’ Plunges; Predicts Just 0.6% Q1 Growth"
"LPL: ‘Modest Stagflation’ Would Benefit TIPS"
"After Fed-Induced Spike, TIPS Auction Proves Weak" (TIP)
Today's Inflation Report Puts the Core Rate At Its Highest Since 2008 (and 2012)
BlackRock: "Why Now May Be the Time for TIPS"
"Is US inflation (finally) rising?"
Inflation: TIPS Breakevens Start to Rise as Economic Data Improves
No Inflation? Look At This (#3 will shock you)
"The Treasury Market Raises Its Inflation Outlook" (buy TIPS)

And many more.