By Jennifer Ablan
NEW YORK, June 19 (Reuters) - Dan Ivascyn, the group chief investment officer at bond giant Pacific Investment Management Co, on Tuesday said investors face a “relatively dangerous environment” because political uncertainty is making stretched market valuations more vulnerable to selling pressures.
“It’s about trying to limit the downside when fear returns to the market and volatility rises,” Ivascyn said in a telephone interview. Pimco, which oversaw more than $1.77 trillion in assets as of March 31, has been cutting its exposure to high-yield debt and investment-grade bonds.
The Newport Beach, California-based firm, owned by Allianz SE, has also been reducing Australian duration mostly in favor of U.S. Treasuries, Ivascyn said. “There’s a better chance of a flight-to-quality (into U.S. Treasuries) than a major breakout of inflation,” he said.
U.S. stocks traded lower on Tuesday as President Donald Trump’s latest threat to impose duties on additional Chinese goods heightened worries that tit-for-tat tariffs could spiral into a trade war.
“The biggest risk is that there is plenty of room for political surprises,” Ivascyn said. “This is an environment to be careful and cautious. It takes very little negative news to incite volatility.”
Pimco has been “selling some and adding some” emerging market securities, Ivascyn said. “Valuations look interesting, but we must see volatility come down before doing any major buying,” Ivascyn added. “There’s been idiosyncratic situations that justify the price action. We need to see those calm down.” (Reporting By Jennifer Ablan Editing by Chizu Nomiyama and Steve Orlofsky)