PIMCO sees increasingly attractive value in US government bonds after a sustained sell-off pushed long-term Treasury yields to their highest levels in around 24 years, increasing the income available to investors while raising borrowing costs across the wider economy.
Rupert Harrison, senior adviser to PIMCO’s UK portfolio management team, is reported to have highlighted the value now available in Treasury markets at a TS Lombard event in London on October 6. PIMCO’s participation in the event is independently confirmed, while the firm’s published investment research has also become more constructive on government bonds as yields have risen.
The move follows a substantial repricing at the long end of the US yield curve. The 10-year Treasury yield reached 5.287% on October 5, its highest level since 2002, while the 30-year yield has also approached levels last seen around 24 years ago.
PIMCO had already identified improving value in longer-dated government debt. In research published on August 21, the asset manager said the 30-year US Treasury yield had reached roughly 5.3% and argued that higher yields were creating more attractive opportunities through income, carry and the potential returns available from a steeper yield curve. PIMCO
The rise in long-term rates reflects more than expectations for Federal Reserve policy. PIMCO has identified increasing sovereign debt, surging AI-related corporate bond issuance and persistent inflation concerns as factors contributing to higher long-dated yields in the US and other developed markets.
Federal debt has now exceeded $40 trillion, increasing investor attention on borrowing requirements and interest costs. Higher government issuance means Treasury securities must compete for capital at the same time as companies funding large AI infrastructure programmes are bringing substantial amounts of corporate debt to market.
For CFOs and finance directors, higher Treasury yields feed directly into the cost of capital. Government yields provide reference rates across corporate bond and lending markets, meaning companies can face higher refinancing costs even without any deterioration in their own credit quality.
The effect works differently for institutional investors and companies holding surplus cash. Higher starting yields improve the income available from high-quality fixed income and can make government bonds more competitive with equities, cash and lower-rated credit.
PIMCO’s June secular outlook also argues that fiscal strain, geopolitical uncertainty and large-scale AI investment could increase differences between economies and markets. The firm sees diversified, high-quality fixed income and credit strategies as potentially benefiting from those conditions rather than relying on a single directional view on rates.
Government bonds may also regain some of their traditional portfolio-diversification role if economic growth weakens or equity markets fall. Harrison is reported to have pointed to duration exposure as protection against a technology-sector correction or economic slowdown, although persistent inflation remains a risk to that relationship.
The attraction of current yields therefore depends on whether the recent increase proves durable or partly reverses as growth and inflation expectations change. PIMCO’s published research indicates that the increase has already improved prospective fixed-income returns.
Finance teams reviewing borrowing plans, pension assets or investment portfolios may therefore need to assess both sides of the repricing. Elevated Treasury yields increase refinancing pressure for borrowers, but they also offer institutional investors levels of income from high-quality government debt that have been unavailable for much of the post-financial-crisis period.
