Tight credit conditions have contributed to a dramatic widening in risk premiums across a variety of fixed-income assets. In PIMCO’s view, some of these assets are now undervalued and remain fundamentally sound. However, PIMCO will be very discriminating as it pursues these opportunities. The firm believes that the best risk-adjusted returns will be found, initially, in top-quality corporates, mortgages and other asset-backed bonds.
Realignment of the financial sector will create compelling opportunities for investors. Regulators charged with cleaning up the subprime mess will likely look to remove risks of institutional failure from the banking system. The costs to these institutions of this regulatory reaction will be seen in a lower return on capital that will likely tilt relative value in the direction of bondholders and away from stockholders of financial companies.
PIMCO will look to minimize exposure to U.S. interest rates except on the short end of the yield curve. The Fed is unlikely to be aggressive in reversing cuts in short-term U.S. interest rates in the face of a weak U.S. economy and troubled housing sector. However, the Fed has far less control over longer maturity U.S. rates, which may rise as the U.S. finances higher fiscal deficits and seeks to attract investors already heavily exposed to U.S. Treasuries.
We believe the U.S. dollar’s decline is not over, but the currencies that rise versus the dollar will be different than in the past. The potential gainers will be dominated by countries with less flexible currency regimes such as China and other Asian economies. These countries will be forced to allow their currencies to rise against the dollar to stem inflation that has in large part been imported by linking their currencies with the U.S. dollar.
Investors should consider the investment objectives, risks, charges and expenses of any mutual fund carefully before investing. This and other information is contained in the fund´s prospectus, which may be obtained by contacting your financial advisor. Click here for a complete list of the PIMCO Funds prospectuses. Please read the prospectus carefully before you invest or send money.
Investment Products: NOT FDIC INSURED / MAY LOSE VALUE / NOT BANK GUARANTEED
Past performance is no guarantee of future results.
Investments in commodities may be affected by overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes and international economic and political developments. An investment in commodities may not be suitable for all investors.
Forecasting future economic and political trends is inherently imprecise because the behavior of markets is unpredictable. While at certain times the Secular Forum has anticipated certain trends, at other times it may not have done so.
This is not an offer or solicitation for the purchase or sale of any financial instrument. It is presented only to provide information on investment strategies and opportunities. The material contains the current opinions of PIMCO and non-PIMCO personnel, which are subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.
Each sector of the bond market entails risk. The guarantee on Treasuries, TIPS and Government Bonds is to the timely repayment of principal and interest. Shares of mutual funds that invest in them are not guaranteed. Mortgage-backed securities are subject to prepayment risk. With Corporate bonds there is no assurance that issuers will meet their obligations. High-yield bonds typically have a lower credit rating than other bonds. Lower rated bonds generally involve a greater risk to principal than higher rated bonds. Investing in non-U.S. securities may entail risk as a result of foreign economic and political developments; this risk may be enhanced when investing in emerging markets. In an environment where interest rates may trend upward, rising rates will negatively impact most bond funds, and fixed income securities held by a fund are likely to decrease in value. Bond funds and individual bonds with a longer duration (a measure of the expected life of a security) tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations.
The PIMCO Funds and Allianz Funds are distributed by Allianz Global Investors Distributors LLC, 1345 Avenue of the Americas, New York, NY 10105-4800. www.allianzinvestors.com © 2009
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