Bonds could soon become attractive again as investors worry about a possible recession after a sell-off that has hammered valuations, U.S. investment firm, PIMCO, said on Tuesday. U.S. government bonds have had their worst start to the year in history as the Federal Reserve embarked on a path to tighten monetary conditions in response to unrelentingly high inflation. Last week, the central bank hiked interest rates by 75 basis points — its biggest increase since 1994 — and anticipated that similarly supersized hikes were possible going forward. Still, expectations that the Fed’s actions may weigh heavily on economic growth or even push the U.S.
economy into a recession could soon bode well for bonds. “There’s no guarantee that an end is in sight. But there are signs that, as in past steep market declines, the current losses are resetting valuations to levels that can prove attractive to investors who stay focused on the long term, with potential diversification benefits also improving,” said Marc Seidner, CIO Non-traditional Strategies at PIMCO. A hawkish central bank increasingly determined to quell inflation has made a potential recession more likely. Goldman Sachs on Monday said it now sees a 30 per cent chance of the U.S. economy tipping into a recession over the next year, up from its previous forecast of 15 per cent.