Looking across the global opportunity set, we see potential for attractive yield, though uncertainties surrounding the global recovery suggest this is a time to be cautious.

The uncertain economic recovery amid a continuing pandemic creates risks for investors, but opportunities as well. Here, lead portfolio managers for PIMCO’s Income Fund, Dan Ivascyn, Alfred Murata, and Josh Anderson, discuss PIMCO’s economic and market views along with current portfolio positioning.

Q: What is PIMCO’s broad economic outlook?

Ivascyn: Our base case outlook is cautiously optimistic, with continued albeit varied improvement in how the coronavirus is treated and managed globally, including a vaccine perhaps early next year. We are beginning to see a bounce in economic growth up from dramatically low levels, largely driven by massive support from both monetary and fiscal policy. We expect a fairly sharp recovery, at least initially, before momentum tapers. The recovery will likely be uneven, both over time and across different regions of the world. In the U.S., we don’t anticipate returning to late 2019 growth levels until 2022.

Tremendous uncertainty remains around the outlook. Other factors outside the pandemic, such as geopolitics, could have an impact. And even with all the policy support, some areas of the economy will be permanently damaged. These risks of capital impairment make this an environment to tread carefully and keep a defensive mindset.

Q: What does this outlook mean for global bond markets?

Ivascyn: Many fixed income sectors have retraced a significant amount of the spread widening we saw in March, especially sectors where central banks are providing support. But that sector-level tightening can mask pockets of weakness. This combination – tighter overall spreads, but also areas that haven’t recovered (and may never recover) – complicates the process for investors targeting attractive yield along with resiliency within a portfolio.