Bond manager with $1 trillion on the line says you will be ‘well rewarded’ by doing this

US Top News and Analysis

The latest round of volatility in the bond market may be nerve-wracking, but it can also be a great opportunity, according to Pimco chief investment officer Dan Ivascyn. If investors are patient and don’t take a lot of interest rate exposure, “the prospects look quite good over the next few years,” he said in an interview with CNBC’s ” Power Lunch ” Thursday. Pimco had $1.79 trillion in assets under management, as of June 30. Ivascyn is also the portfolio manager of the Morningstar 5-star rated Pimco Income Fund (PIMIX), which has a 5.46% 30-day SEC yield, according to Morningstar . This year’s 2.52% total return — price and income — is near the top third of its category. PIMIX 1Y mountain Pimco Income Fund one-year return Investors skittish over the path of Federal Reserve interest rate policy, inflation stubbornly above the central bank’s 2% target and an enormous amount of Treasury issuance have sent yields higher, with the 10-year touching a 16-year high last week . Yields have since retreated somewhat in recent days. Bond yields move inversely to prices, so when prices go down, yields go up. Ivascyn expects the volatility to continue, with inflation still needing to be tamed and the risk of a so-called hard economic landing “still quite high.” In this environment, the 25-year Pimco veteran is trying to keep it simple, remain resilient and has improved the credit quality in his portfolios over the past several months. He likes agency mortgage-backed securities, very high quality corporate bonds and some asset-backed securities in very seasoned pools of mortgages. “For the patient investor, with a two- to three-year type horizon, you will be well rewarded to shift out of cash, [and] lock in some of these yields,” Ivascyn said. “Even looking at equity valuations versus fixed income, it probably makes a lot sense to shift a little bit of your equity exposure into the higher quality bond market, maintain some liquidity and then position yourself to take advantage of what we think will be more volatility in the next couple of years.” He’s staying away from floating rate and lower quality credit investments.