Pimco boss warns of fragile markets after pandemic
By Sean Farrell
Date: Monday 16 Nov 2020
(Sharecast News) - The Covid-19 crisis will leave the global financial system in a fragile state even after the pandemic subsides, the investment chief of Pimco, the giant bond fund, warned.
Dan Ivascyn said the world would have to live with the results of extra debt taken on by companies and nations to get through the crisis.
"We will come out of Covid with a lot more debt for companies and governments and that leaves us with inherent fragility," Ivascyn told the Financial Times. He said his $2tn (£1.5tn) fund was tentatively positive about the ability of vaccines to support the global economy in 2021 but the outlook was still uncertain.
"We remain fairly defensive from a credit perspective," he said. "We are cautiously optimistic we [can] get through this but it is a challenging environment for investors. These are uncharted waters and you need to respect where this takes us."
Ivasyn also said a shortage of liquidity could catch investors out with markets dominated by central banks. "Outside of central banks there is not a lot of transactional liquidity in markets and it's always better to plan ahead."
The IMF has calculated leading economies have provided about $11tn support for households, businesses and the healthcare sector since the start of the pandemic. The UK has spent more than £200bn on programmes to keep people in work and businesses afloat and other measures.
Investors have bought a flood of debt issued by companies to earn returns with yields on government bonds hovering around zero. This demand has sent yields on corporate debt tumbling with junk bond yields at record lows.
Ivascyn told the FT Pimco's firmest bet was on credit linked to housing markets. Low borrowing costs make housing affordable and mortgage-backed bonds offer investors security because of high property prices in the US, UK and Europe, he said.
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