From Bloomberg, February 6:
- Fund favors lower-than-benchmark exposure in Japanese bonds
- Pimco is bearish on the bonds issued by China’s policy banks
The Bank of Japan may scrap its negative interest-rate policy as soon as March and make multiple hikes this year, adding to the bearish outlook for the nation’s government bonds, according to Pacific Investment Management Co.
The last adherent of sub-zero borrowing costs is expected to raise its benchmark to 0% in March or April, before hiking to 0.25% by year-end, Pimco said in a market-outlook report. Quickening wage growth is likely to create persistent inflation in the economy, ensuring “supportive” conditions for exiting negative rates, according to the $1.9 trillion money manager.*****“It’s likely going to be a two-shot type of move to get to 0.25%,” Stephen Chang, a fund manager at Pimco in Hong Kong and co-author of the report, said in an interview. The increase may be in 10 basis-point, and then 15 basis-point increments, he said, adding Pimco favors a lower-than-benchmark exposure to the Japanese bond market in some strategies based on its views.Fund titans such as Pimco and RBC BlueBay Asset Management are preparing for when the BOJ will finally raise rates back above zero, ending an eight-year-long period of negative borrowing costs that convinced Japanese investors to send trillions of dollars overseas. The repatriation of those investments may already be starting with funds from the Asian nation selling a record amount of European debt in recent years.
The BOJ late last year “de facto ended its yield curve control” by announcing its 1% cap on 10-year yields would be a reference rate rather than a hard limit, underscoring its progress toward rate hikes, Pimco analysts wrote in the report. While the New Year’s Day earthquake in northwest Japan spurred traders to pare bets on policy tightening in January, Pimco said the natural disaster will ultimately have only a minimal impact on the economy.
“The ultra-loose monetary policy that Japan has pursued for the last 20-plus years thus looks set to be finally phased out,” Chang and his colleagues wrote in the report.
Pimco’s global economic adviser Richard Clarida had said in October the BOJ may axe its yield-curve-control program before the end of last year.
‘Overwhelmingly Bearish’
While Pimco is bearish on Japanese bonds, the money manager says it’s more neutral on their Chinese counterparts....
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