Salient to Investors:

Michael Althof at Pimco said:

  • Pimco favors inflation protection in Australia and the US as global stimulus stokes faster price increases.
  • Central banks are more willing to risk inflation as a trade-off for growth and employment, and pressure for higher inflation longer-term makes index-linked bonds attractive.
  • Pimco likes Australian bonds because they offer one of the highest real yields in developed markets, high quality and Australia has a strong balance sheet.
  • Pimco bought US TIPS betting that  inflation expectation will rise: prefers bonds with a maturity of 10 years and longer.
  • Inflation expectations in the US will increase over time because of Fed policy.
  • The near-term part of the bond market reacts more to oil, food prices and currency risks, while the longer-term part reacts more to expectation and the central bank’s policy stance.

Manoj Pradhan at Morgan Stanley said central banks that stick to their mandate of keeping inflation in check risk quelling growth and even triggering deflationary pressures, so need to allow for higher inflation until the public and private levels of debt are lowered.

Economists estimate Australia will expand 3.6 percent in 2012 and 2.95 percent in 2013.

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