Dan Ivascyn Is Excited About a New Era in Fixed Income

What It Covers

PIMCO CIO Dan Ivascyn discusses the transformed fixed income landscape since 2015, explaining why bonds now offer compelling value after a decade of underperformance, while credit markets face potential disappointment after unprecedented growth.

Key Questions Answered

• •Post-GFC Credit Performance Anomaly: From 1980s to 2008, lowest-quality credit outperformed high-quality bonds by only 0.5% annually due to regular economic downturns. Post-2008, this jumped to 7% annual outperformance, creating unsustainable expectations and aggressive underwriting standards across private credit markets.
• •Bond Valuation Reversal: Over the past decade, S&P 500 returned 15% annually while Bloomberg Aggregate Bond Index returned under 2%, producing negative real returns. Current valuations suggest bonds may outperform equities over the next five to ten years on a risk-adjusted basis without requiring correlation benefits.
• •Global Fixed Income Opportunity: International bond markets now offer attractive yields after years of negative rates, with less policy intervention creating higher risk premiums and lower correlations. High-quality sovereigns like Australia and Germany provide diversification away from US fiscal concerns while maintaining competitive returns.
• •Regulatory Arbitrage Pattern: Policymakers avoid bailing out the same sectors twice. Post-GFC regulations strengthened household lending and bank oversight, leaving corporate credit and private lending relatively unregulated. This explains massive growth in private credit and potential vulnerability in non-financial corporate lending during economic weakness.