U.S. Inflation Update

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A leading US bond management company warned that inflationary pressures from housing rental costs could push up interest rates and subvert investor complacency.

Dan Ivascyn, Pimco’s chief investment officer, who manages $2.2 trillion in assets, made the above comments after the 10-year interest rate in the United States had fallen to about 1.25% in recent months. Concerns about the surge in inflation at the beginning of the year caused panic among bond investors and pushed the important benchmark to a peak of 1.75% at the end of March.

“There is a lot of uncertainty about inflation. Although our basic situation is that it has proven to be temporary, we are paying attention to the relationship between house prices and rents,” Ivasin told the Financial Times. “There may be more lasting inflationary pressures on rents.”

Landlord’s equivalent rent It is the key input used to calculate the US consumer price index.As the rent becomes More expensiveIvascyn said that investors may become increasingly worried about “sticky inflation,” which will push the 10-year U.S. Treasury yield back to 1.75%.

The Federal Reserve stated in its latest report Policy statement Last week, it made “progress” in achieving full employment and an average inflation target of 2%. Federal Reserve Chairman Jay Powell said that there are more “upside risks” in the inflation outlook, but he expressed confidence in temporary price pressures for a period of time.

Latest measures Core consumer priceThe central bank followed closely behind, operating at a rate of 3.5% in the 12 months ending in June, which was the fastest growth rate since July 1991.

“There is a lot of noise and uncertainty in the data,” and “it is difficult for the Fed to interpret the incoming economic information,” Ivascyn said.

The fund manager said that in the case of higher inflation expectations, the prospect of the central bank’s possible tightening of policy may limit the potential for bond yields to rise sharply.

“We do believe that if the Fed sees inflation expectations exceed their comfort zone, they may take action,” Ivasin said. “This is the message from Powell’s two recent press conferences.”

Pimco expects that the central bank will announce a reduction in the current monthly bond purchases of US$120 billion later this year, with a view to starting this process in January. Ivascyn said that although policy changes are being “fully communicated” and are dependent on data, bond yields may be higher and market volatility may be greater.

“This is a difficult market environment, and it’s time for you to be careful,” he said, adding that Pimco has been reducing its exposure to interest rate risk because the bond market has lowered borrowing costs.

“The valuation is too high, and it makes sense to adjust our investment portfolio.”

According to Morningstar, Ivascyn oversees the world’s largest actively managed bond fund. 140 billion U.S. dollars Pimco Income Fund Co-managed with Alfred Murata, the total return this year was 2%, while the Bloomberg Barclays US Composite Index fell slightly. According to reports, in the past year, the fund continued its long-term record of exceeding the benchmark. Morning Star.