Powerhouse bond manager PIMCO recently posted their outlook for 2008. In a nutshell they intend to take the following positions:
Interest Rates – Expect rates to continue to decline. They have targeted above-index duration, primarily on the front end of yield curve in both the U.S. and U.K.
Mortgages – Their plan is to overweight this sector as valuations now look attractive after being beaten down in 2007. Focus is on the high-quality sector, not sub-prime.
Credit – PIMCO's focus is on higher credit quality issues, especially in banking and finance where there appears to be the most value after a very poor 2007.
Currency – Their strategy is to focus on Asian and emerging markets' currencies, as continued weakness in the U.S. Dollar is expected.
Emerging Market Bonds – They plan to focus on higher credit quality EM debt. Countries of emphasis are Mexico, Russia and Brazil.
TIPS – With lower yields and higher inflation, real returns are expected to be low. TIPS do not offer much value.
Municipals – Yields are at historically high levels versus comparable Treasuries. An overweight is expected.
To see PIMCO's full outlook, please click on this PIMCO Link.