Fixed Income  

Pimco launches ‘low duration’ bond funds

US-based bond giant Pimco has added two “low duration” funds to its offshore fund range, both of which have a lower sensitivity to movements in interest rates.

The Pimco GIS Global Low Duration Real Return fund and the Pimco GIS Low Duration Global Investment Grade Credit fund are aimed at investors “who may be concerned about rising rate risks”, the company said.

Bonds with longer maturities tend to sell off significantly when interest rates are expected to rise, as happened last year when the US Federal Reserve began to talk openly about tapering its quantitative easing stimulus programme.

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As a result many fund managers have taken steps to reduce ‘duration’, or the sensitivity of their funds to these rate moves, by buying bonds with shorter maturities or using derivatives.

The Low Duration Global Investment Grade Credit fund is run by Mark Kiesel, one of Pimco’s deputy chief investment officers based in the company’s head office in Newport Beach, California. The Global Low Duration Real Return fund is run by Mihir Worah, also a deputy chief investment officer at Newport Beach.

Mr Worah said: “The array of policies implemented by developed country governments and central banks to address the global financial crisis has resulted in unsustainably high debt levels and zero-bound nominal interest rates.

“While these policies have successfully suppressed the risk of deflation and depression posed by the crisis, they have also increased the risk of higher inflation in the years ahead. This new strategy helps investors to better address the risk of higher inflation and rising rates.”