2016 was a landmark year for US bonds, with the Federal Reserve unanimously approving a second US interest rate boost in a decade, hoping that the gentle guidance of Chair Yellen would outdo the tapering shocks delivered by former chair Bernanke. No liquidity crisis followed, but the 10-year Treasury yield was nevertheless sent for a ride, closing the year at 2.44%, up 20 bps, which included a 121 bps peak-trough surge in the latter half.
Trump’s promises to deliver domestic reforms spanning tax cuts, deregulation and increased fiscal spending in his flamboyant quest to “make America great again” fuelled inflationary fears that led investors to swiftly hedge inflation risks, while fundamentals remain largely intact to gently digest rate hikes.
Although the US did not deliver the kinds of jaw-dropping returns that would rival its emerging markets neighbours, the depth and diversity of its fixed income universe continues to demonstrate the finer sophistications of a market designed for mature investor needs. Though few are betting on runaway inflation in the near-term, the US bond market is rich with floating rate paper to buffer risks, ranging from senior secured loans to mortgage-backed securities.
But selection, management and access to this wider credit universe is not for the faint of heart, and proven bottom-up expertise is all the more critical in a less covered market where a greater marginal edge can be achieved.
During 30-odd year history of floating rate debt, PIMCO has been investing in the asset class for over two decades. This is on top of PIMCO’s stellar 40 plus-year track record that cements its status as a leading global fixed income manager. It is anyone’s guess whether Trump’s political journey will boom or bust, but Asia’s gatekeepers have entrusted this increasingly complex allocation to PIMCO, selecting the firm as this year’s Best Fund Provider – US Bond.