Preparing for liftoff
april 2015
Second, global central bank policy, disinflation pressures, and eco-
Bottom-line: The ability for the Fed to hike policy rates or for
(Chart 4). This weighs down U.S. Treasury yields by driving capi-
a focus on intermediate credit, in particular BBB rated bonds, re-
nomic risks abroad may constrain the Fed and Treasury yields.
With global central bankers engaging in aggressive QE, sovereign
yields have plunged to levels not seen in modern economic history
tal flows to more attractive sovereign securities. Further, the U.S.
economy is not an island, and low global growth rates may weigh
on U.S.
GDP. The world is pushing down the U.S. yield curve, pro-
viding incentive to a slower pace of policy from Fed officials.
Given
these factors, we may very well see a repeat of the last cycle, where
intermediate and longer duration securities outperform.
Chart 4: U.S. Treasury yields are among the highest in the
developed world
8
10-Year Sovereign yield (%)
7
6
5
4
3
2
Italy
2012
are not advocating for an extension in duration. Instead, we believe
mains our preferred investment grade area.
There is a considerable amount of intellectual energy focused on
U.S.
monetary policy and the actions of the Federal Reserve. However, this tightening cycle may have other influences and help determine things just as important as driving bond returns over the
next few years. Can the U.S.
economy finally be able to stand on its
own? Is our financial system stronger today than prior to the cri-
sis? Are risk assets valued appropriately? As the current Chair of
the Fed would say, these questions are “data dependent”.
April 2015
France
2012
by growth, disinflation pressures, and global monetary policy. We
Pacific Asset Management
Spain
U.S.
Germany
1
0
2012
Treasury yields to move to previously seen levels will be limited
2013
2013
2013
2013
Japan
2014
2014
2014
2014
2015
Source: Barclays, as of April 31, 2015
ABOUT PACIFIC ASSET MANAGEMENT
Founded in 2007, Pacific Asset Management specializes in credit oriented fixed income strategies. Pacific Asset Management is a division of Pacific Life Fund Advisors
LLC, an SEC registered investment adviser and a wholly owned subsidiary of Pacific Life Insurance Company (Pacific Life).
As of March 31, 2015 Pacific Asset Management
managed approximately $4.8bn. Assets managed by Pacific Asset Management includes assets managed at Pacific Life by the investment professionals of Pacific Asset
Management.
IMPORTANT NOTES AND DISCLOSURES
Bank loan, corporate securities, and high yield bonds involve risk of default on interest and principal payments or price changes due to changes in credit quality of the
borrower, among other risks. Pacific Asset Management is an investment advisor; it provides investment advisory services to institutional clients and does not sell securities.
Pacific Select Distributors, Inc. is the distributor for Pacific Life’s retail products. Pacific Asset Management and Pacific Select Distributors, Inc.
are each a wholly
owned subsidiary of Pacific Life.
This information is presented for informational purposes only. This is not to be construed as an offer to buy or sell any financial instruments and should not be relied
upon as the sole investment making decision. All material is compiled from sources believed to be reliable, but accuracy cannot be guaranteed.
The opinions expressed
herein are based on current market conditions, are subject to change without notice. Investors should consider the investment objectives, risks, charges and expenses
carefully before investing. Please read the applicable prospectus or other offering documents carefully before investing.
For this and more complete information
about the available investment vehicles, investors should contact their financial advisor, consultant or visit www.pacificlife.com or www.pam.pacificlife.com.
FOR MORE INFORMATION
Pacific Asset Management • 700 Newport Center Drive • Newport Beach, CA 92660 • www.pam.pacificlife.com
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