PIMCO chief investment officer Dan Ivascyn says US Treasury yields may have further room to rise. He expects the Federal Reserve to keep rates unchanged later this month and sees scope for one or two additional hikes. He says the risk is in rate-sensitive sectors such as housing and commercial real estate.
PIMCO's Dan Ivascyn says US Treasury yields may have further room to rise, with the Federal Reserve likely to deliver one or two more rate hikes before the current tightening cycle ends. The chief investment officer at the world's largest bond manager spoke to Reuters on Tuesday, on the sidelines of the Grant's Fall Conference.
Fed seen on hold now, tightening later
Ivascyn expects the Fed to keep rates unchanged later this month, but sees scope for one or two additional hikes. He said PIMCO's own view is one to two tightenings, given the current outlook.
Meanwhile, US 10-year and 30-year yields hit multi-decade highs over the last two weeks. The selloff reflects investors pricing in multiple Fed rate hikes over the next 12 months, amid a spike in oil prices that has rekindled inflation concerns.
Housing and commercial real estate carry the risk
Ivascyn believes the long end of the curve could handle more Fed tightening because that has been priced in. However, the risk lies in rate-sensitive sectors such as housing and commercial real estate. He said housing is already weak, and that PIMCO is seeing more substantial weakening in commercial real estate in its own business.
Warsh's room to maneuver
Ivascyn expects Fed Chair Kevin Warsh to approach inflation with an open mind, but warned that the Fed's committee may limit his room to maneuver. According to Ivascyn: "We actually think Warsh is open-minded towards understanding this inflation process," he said.
Still, Ivascyn cautioned that the outlook has become harder to predict after a jump in headline inflation. He said the committee had communicated that further tightening might be needed before Warsh took over, and that a first-time chair may not want to oppose it.
Ivascyn also expects Warsh to remain independent on interest rate and balance sheet decisions while reducing the Fed's communication, an adjustment markets will have to deal with.
Source: Investing.com (Reuters)
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