Pimco Favors Gilts Over US Treasuries Amid Inflationary Pressure

Pimco, the bond fund giant, holds a smaller US Treasuries position, favoring UK and Canada bonds amidst expectations of slower rate cuts by the Federal Reserve. The chief investment officer sees US inflationary pressures as a challenge, with evidence suggesting corrective inflation outside the US. Markets predict rate cuts by major central banks, though the Fed remarkably maintains its forecast. Pimco's inclination for long-dated government bonds abroad reflects sensitivity to interest rate changes, emphasizing concerns over the US budget deficit. Andrew Balls, Pimco's chief investment officer, cites potential for higher term premia due to the yawning fiscal deficit. Considering exposure to sensitive-rate bonds, Pimco looks to the UK, Australia, New Zealand, and Canada. Meanwhile, the Bank of England's stance aligns with market expectations, with the governor expressing confidence in inflation. Notably, Pimco's larger position in gilts reflects confidence in the UK's fiscal policy landscape. Bonds, particularly in the UK, continue to attract Pimco's attention, indicating a strategic shift in their investment approach.