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By Jamie McGeever
LONDON Oct 13 One of the world's biggest bond
funds said on Thursday that a recent rise in UK government bond
yields, which have almost doubled in the last six weeks, had
mostly run its course.
Yields, which move inversely to prices, have risen as a
sharp drop in the pound, related to the country's decision to
leave the European Union, has stoked inflation expectations.
"It's possible we get a little bit of a further rise in
(gilt) yields but probably more of it is behind us than ahead of
us," PIMCO's head of sterling portfolio, Mike Amey, told Reuters
at a briefing in London.
Amey said he had closed a "long" position in UK government
bonds and any decision to increase holdings again would depend
largely on the government's fiscal policy.
New finance minister Philip Hammond is expected to deliver a
package of fiscal stimulus in his autumn statement due next
month which Amey said will be the next big event for investors
trying to work out how Britain's economy will fare after Brexit.
Amey said gilt yields -- currently around 1 percent in the
10-year maturity -- could be tempting if the government keeps a
tight rein on its finances.
"1 percent could look pretty attractive in a tight fiscal
policy, and much less attractive if the deficit were to rise."
On the British pound, which struck a record low on a
trade-weighted basis earlier this week, Amey said "it's likely
we'll see heightened volatility for a while."
PIMCO's global economic advisor Joachim Fels said that
global markets should prepare themselves for at least one more
bout of volatility by the end of next year.
"What we've learned over the last few years given that
markets are so fully priced or highly valued, is it doesn't take
much to upset the apple cart," said Fels.
"We can have long periods of relative calm, then all of a
sudden you get a bout of volatility."
(Writing by John Geddie; Editing by Hugh Lawson)