PIMCO has hosed down talk of a bubble in bonds, with the ‘big four’ central banks to remain “firmly in easing mode” for the foreseeable future, and the 2.5 per cent yield on 10-year US Treasuries “lower than the nominal GDP growth we would expect over that timeframe”, according to visiting global product head David Fisher.

 

In a briefing yesterday, Fisher did say that investors generally would need to adjust to lower returns, with “4 to 4.5 per cent” about as much as an investor could expect from a bond portfolio under the “new normal” conditions of a two-speed global economy, featuring a deleveraging West and pockets of emerging market growth, adding up to five years of “relatively slow” global growth.

Fisher said that bond yields would continue to be attractive while ever cash rates remained low, which he predicted would be the case as the US “monetised its debt needs” through the latest quantitative easing program, buying more bonds than its gross issuance.

Acknowledging the rhetoric that the US Federal Reserve’s actions may be creating a bubble market in bonds, Fisher noted that bond prices only rallied moderately upon announcement of QE2, signalling that chairman Ben Bernanke’s intentions had already been priced in by the market.