As recession becomes less of an "if" and more of a "when," one top fund firm executive is turning to high-quality segments of the fixed income market for stability.

Daniel John "Dan" Ivascyn Pimco Group Chief Investment Officer

At the 2023 Morningstar Investment Conference (MIC), Pimco chief investment officer Dan Ivascyn emphasized the importance of keeping a level head as markets contract. Some of his recommended investing areas include agency mortgages, taxable municipal bonds, and the IG credit markets.

In a press briefing, Ivascyn explained that preparing for more volatility from the central bank space is crucial for investors today. However, there is "not an obvious near-term solution" to markets roiled by outside forces, he notes.

Ivascyn told MFWire during the briefing that recent regional bank weaknesses (e.g. First Republic) are far from resolved, and will contribute to economic woes moving forward. "Recession is probably more likely than not, [but] the recession term is a tricky one because it suggests some binary magic, like you're either growing or you're in recession."

"It's hard to talk in multiple dimensions, so we use the term because it's simple and easy to understand," he adds.

What's printed in the papers, Ivascyn says, has a strong impact on investor behavior. In practice, "recession" and "sustained period of very, very low growth" aren't so different — but one is more sensational. In the investment world, the "headline effect" is very real.

Ivascyn notes that while the economy is generally stable, "anytime you have near stall speed growth or even slightly-negative growth, you have this inherent fragility that can lead to even more significant shocks."

The PIMCO team believes that "there is enough value back in the traditional, highest-quality segments in the fixed income markets," Ivascyn adds.

"Sure, you have to give some yield versus more economically-sensitive investments," he says, "but given extreme uncertainty, we think clients should be willing to give up a little bit of return." 

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