NEW YORK, Dec 17 (Reuters) - Pimco, one of the world's largest bond asset management firms, said on Thursday that it is underweight fixed-income risk as the Federal Reserve continues to tighten monetary policy and continues to favor U.S. Treasury Inflation-Protected Securities.
"In terms of portfolio positioning, we expect to maintain duration underweights in most portfolios, reflecting the potential for some upward pressure on U.S. and global yields as the Fed continues to tighten monetary policy and the fact that term premia across interest rate curves are generally low in the U.S. and across developed markets," Global Strategic Advisor Rich Clarida and Global Fixed Income CIO Andrew Balls said in a note a day after the Federal Reserve hiked rates for the first time in nearly a decade.
Newport Beach, California-based Pacific Investment Management Co, which is a unit of Allianz SE, oversaw $1.47 trillion in assets under management as of Sept. 30. "We continue to favor TIPS, seeing valuation levels as attractive versus nominal bonds given our expectations of a return to inflation close to 2 percent over the cyclical horizon," Clarida and Balls said.
Pimco said the firm is "broadly neutral" on agency mortgage-backed securities, while the firm likes non-agencies, including their seniority in the capital structure at a time when Pimco remains constructive on the outlook for the U.S. housing market.
"In a world of fair to expensive valuations, the credit risk premium looks reasonable," Clarida and Balls said. "Outside of the energy sector, credit fundamentals are solid, and we generally expect to add credit over the next year, taking advantage of periods of market weakness. We see opportunities across investment grade, high yield, U.S. bank senior debt and bank capital in Europe."
Pimco said its forecasting above-trend economic growth in the range of 2.0 percent to 2.5 percent over the next four quarters and projects headline Consumer Price Index inflation in a range of 1.5 percent to 2 percent. Pimco expects Mexico, Brazil, South Africa and the Bank of England to hike rates in 2016.
Most other central banks in the world, and all the other major ones - European Central Bank, Bank of Japan, People's Bank of China - will likely ease policy in 2016, either through rate cuts or ongoing or expanded quantitative easing programs, or at the very least keep rates on hold and close to the effective lower bound, Pimco said. (Reporting by Jennifer Ablan; Editing by Lisa Shumaker)