October 30, 2018 / 3:27 PM / a year ago

Pimco chief Dan Ivascyn says Fed will hike despite Trump criticism

FILE PHOTO: The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie/File Photo/File Photo

NEW YORK (Reuters) - Dan Ivascyn, the group chief investment officer at bond giant Pacific Investment Management Co, on Tuesday called the high-yield bond market “one of our least favorite sectors,” commenting against the backdrop of a likely interest-rate increase by the U.S. Federal Reserve in December.

“They have been resilient versus equities. But more equity selling from here will begin to widen spreads in high-yield,” said Ivascyn, who helps oversee more than $1.72 trillion in assets under management. “High-yield is a sector prone to overshooting on the downside when investor sentiment shifts.”

Ivascyn, whose Pimco Income fund’s five-year and 10-year annualized performance ranks at the top of its peer category, said Pimco has “little interest” in high-yield junk bonds at these levels as there are “better value elsewhere.”

Earlier this year, Ivascyn told Reuters that stretched market valuations in high-yield junk bonds made them more vulnerable to selling pressures. “It’s about trying to limit the downside when fear returns to the market and volatility rises,” Ivascyn said at the time.

The Fed’s tightening of financial conditions has begun to inject some fear into the market. Chairman Jerome Powell will decide in December whether to raise the central bank’s benchmark interest rate for the fourth time this year. The Fed this year has been raising rates to keep inflation in check during an economic expansion, actions repeatedly criticized by Trump.

Ivascyn said on Tuesday: “The economy is still strong with moderate price pressures and recent market volatility not enough to concern them ... They are still accommodative.”

Reporting by Jennifer Ablan; Editing by Tom Brown and Steve Orlofsky

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