The speed with which the Federal Reserve sets about raising rates in 2018 could catch out many investors who have become complacent given recent dovish statements.
That is according to Pimco’s Mihir Worah, CIO of asset allocation and real return and co-manager on several blockbuster funds at the US group.
In an exclusive video with Citywire Selector’s sister site Citywire USA, Citywire + Worah said many people believe the Federal Reserve’s job is done but a speedier course of action is more likely in the coming year.
‘We expect the Fed to hike in December and the market is pricing 70% compared with 50% a month ago. The market is pricing one hike for 2018 and we think there should be about two.
‘Yes inflation is low but the deflation fears are behind us, and the economy doesn’t need this emergency support any more and this means it is likely to hike which will surprise people, as they have been dovish for so long.’
Worah said he and co-managers Scott Mather and Mark Kiesel are therefore positioning the $73 billion Pimco Total Return fund to capitalise on this opportunity. ‘At the expense of the short end, we are therefore underweight that front end versus overweighting or having the bulk of positions in the belly of the curve.’
To watch the video in full and hear Worah’s views on the MBS market and how the team is dealing with dollar strength please click here.