CIO of World’s Largest Bond Fund: “We Are Not Alarmist But It’s Time to Sell”
The comments below are an edited and abridged synopsis of an article by Tyler Durden
Dan Ivascyn, who replaced Bill Gross as CIO of the world’s largest bond fund at PIMCO, recently advised that now is the time to take profits.
Speaking at the UBS Global Wealth Management Summit in Davos, Ivascyn, responsible for allocating hundreds of billions in clients’ funds, said that geopolitical tensions and rising interest rates have created a more fragile situation than in 2016. He noted that, with fixed-income markets still expensive by historical standards, there’s less room to absorb negative surprises.
Ivascyn is not the only one worried about the escalating trade war between the US and China. The Fed the ECB both see trade war as the biggest downside risk.
In addition, Russian sanctions and conflict in Syria have rattled the global markets, while rising interest rates and surging Libor have tightened financial conditions, and are putting pressure on corporations that have borrowed heavily. Bloomberg said, “Bond managers have warned that over-leveraged corporations could create the next wave of financial pain.” So far, stocks have refused to listen.
Then there is the risk of unwinding some $20 trillion in central bank liquidity injections.
Tidjane Thiam, CEO of Credit Suisse, said that ongoing central bank tightening will lead to trouble. Other bankers have also warned about the effect of a return to a more normal interest rate environment, with Daniel Pinto of J.P. Morgan saying that equity markets could fall as much as 40% in the next 2 to 3 years amid rising rates and inflation.