Seeking Long‑term Value in a Gradually Healing Economy


  • We have a cautious outlook for a gradual and uneven economic recovery, and in the Income Strategy we’re focusing on finding long-term value and managing a robust and income-oriented portfolio.
  • Bond yields in general are likely to remain relatively range-bound over the coming year. Because we believe high quality bonds exhibit defensive characteristics and provide diversification, they still have a role in the Income Strategy. Most of this exposure is in U.S. assets.
  • We have been adding some corporate credit risk to the Income portfolio on a bond-by-bond basis, always with a focus on what we see as “bend-but-not-break” opportunities.
  • Because the Fed has actively supported the agency mortgage-backed securities (MBS) market, valuations have richened since mid-March. We have been gradually reducing the strategy’s exposure to agency MBS, but because we believe they remain attractive as defensive income-producing assets, they still represent a significant portion of the portfolio. Separately, the Income strategy also has exposure to non-agency MBS, primarily in seasoned investments that originated prior to 2008 and participated in the longer-term stabilization in the U.S. housing market.

A global health crisis is transforming economies, industries, and communities around the world, creating risk and uncertainty – but also opportunity – for investors. Here, Dan Ivascyn, who manages PIMCO Income Strategy with Alfred Murata and Josh Anderson, talks with Esteban Burbano, fixed income strategist. They discuss PIMCO’s economic and market views along with the current positioning in the Income Strategy.

Q: What is PIMCO’s broad macroeconomic outlook?

Ivascyn: Our base case outlook is one of caution. We are in the midst of a severe economic shock, and expect a gradual and uneven recovery. It could be several quarters before growth starts to approach 2019 levels – and that assumes the health crisis continues to abate, which is far from certain. It will be crucial to monitor how the pandemic evolves as different regions ease restrictions.

It’s important to have some humility about our outlook in such an uncertain environment. And because the Income Strategy focuses on longer-term capital preservation and appreciation, we are especially cautious about managing downside risks alongside seeking opportunities.