Pimco Takes Contrarian View as Market Bets on Global Rate Hikes

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(Bloomberg) — Pacific Investment Management Co. is touting “opportunities to invest against the prevailing narrative” as war in the Middle East and a hawkish shift in expectations for global central banks rattles markets. 

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Pimco favors exposure to more interest-rate sensitive global bonds amid one of the worst selloffs in debt markets worldwide since October 2024 this month. That’s because, with oil prices soaring because of the conflict, the risk of a resurgence in inflation has prompted traders to prepare for possible interest-rate increases in the UK, Europe and the US later this year. 

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To economist Tiffany Wilding and chief investment officer for global fixed income Andrew Balls, however, the energy shock boosts the likelihood of stagflation — or a mix of sluggish growth, elevated unemployment and high inflation.

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“Central banks are unlikely to match the market’s recent repricing of policy rate expectations,” with the impact transmitted more directly to vulnerable households, smaller companies and credit markets, they wrote in a note.

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“In practice, the knee-jerk market reaction toward tighter financial conditions and more hawkish monetary policy is already doing much of the hawkish work for policymakers,” they wrote. Should inflation rise for a time and the economy weaken, “central banks may need to ease more aggressively.”

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US Treasury yields across the two-, to 10-year area have risen as much as 50 basis points during volatile trading this month, leaving short-dated benchmarks just shy of 4%. The 10-year yield around 4.37% sits near the upper end of a 4%-to-4.5% range that has largely prevailed for the past year. 

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The Newport Beach, California-based firm also referenced last year’s period of intense market volatility around the US applying tariffs on trade partners that were much higher than expected and sparked a spike in US yields. 

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“Similar to the volatility that followed US tariff announcements in April 2025, the rapid repricing of central bank expectations in response to the Middle East conflict has created localized volatility and opportunities to invest against the prevailing narrative,” Wilding and Balls wrote. 

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After eclipsing many rivals last year, Pimco’s $229 billion Income Fund, the world’s largest actively managed bond fund, has declined 0.85% this year as of Mar. 23, trailing the market. In that period, it has underperformed 87% of peers. 

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Pimco offers other points of consideration for investors over the next six to 12 months: 

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