Pimco has shifted its investment strategy towards U.S. Treasuries, favoring short and medium-term bonds over long-term ones due to worsening U.S. fiscal conditions. The firm's Chief Investment Officer, Marc Seidner, and portfolio manager, Pramol Dhawan, highlighted an 8% increase in the U.S. federal budget deficit, reaching $1.8 trillion. This expansion raises concerns about long-term debt sustainability and potential inflation risks.
The concept of "bond vigilantes," investors who sell bonds to penalize fiscal excess, has resurfaced. Last year, their actions pushed the U.S. 10-year Treasury yield to 5% for the first time in 16 years. Despite market relief following Scott Bessent's nomination as U.S. Treasury Secretary, Pimco warns that fiscal policy excesses may still trigger bond market reactions.
Pimco is adjusting its strategy by reducing long-term U.S. Treasury investments and reallocating funds to the UK and Australian bond markets. While the U.S. holds a unique position with the dollar as a global reserve currency, excessive borrowing could challenge its repayment capabilities.
