American bond market behemoth PIMCO said on Wednesday that interest rate cuts from the Federal Reserve will begin in the middle of the year, but that the US market will have a more gradual easing cycle compared to other developed nations.
Bond markets in nations like Australia, Canada, and the UK are preferred by PIMCO due to lower inflation concerns compared to the US, according to a 6-12 month outlook report by economist Tiffany Wilding and chief investment officer for global fixed income Andrew Balls.
"Central banks, which tightened policy in unison to curb the pandemic inflationary spike, will likely follow varied paths when cutting interest rates," according to them. "While many large, developed market economies are slowing, the U.S. has maintained its surprisingly strong momentum, with several supportive factors poised to persist."
According to PIMCO, the economic platforms of the presidential candidates in the next US election might be good for the US economy and bad for economies across the world.
"Those factors supporting relative U.S. growth are also likely to contribute to stickier inflation in the U.S. in 2024," according to the report. Although the Federal Reserve has predicted three rate decreases this year, the anticipated transition to a less restrictive policy rate could be postponed due to a spate of recent robust economic statistics. time: 00:08
Although PIMCO anticipates a "soft landing" for the US economy (i.e., a situation in which high interest rates curb inflation without sending the economy plunging into recession), the firm warned that the chances of a recession or more persistent inflation were still high.
The United States appears to have the highest level of persistent inflationary concerns. Recession risks remain a major concern elsewhere," it stated.
When it comes to the credit markets, it favors high-rated corporate debt over bonds issued by corporations with a higher risk profile and higher yield, as well as U.S. agency mortgage-backed securities, which are seen as desirable.
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