GERMANY - Government bonds of industrialised nations will no longer be able to offer returns investors have grown accustomed to, PIMCO Germany has warned, as the asset manager restructures its debt portfolio.
Andrew Bosomworth - head of portfolio management at PIMCO Germany and board member of Allianz Global Investors KAG - said a shift in investment strategy was required to compensate for the loss in returns.
Bosomworth argued that the last 30 years, which had seen "attractive" returns from government bonds, was unlikely to continue.
Regarding the asset manager's exposure to long-dated bonds, he said: "A long duration will from now on no longer be sufficient to allow for increasing returns. With this in mind, we have reduced the duration across our portfolio."
He said returns were still possible in the bond market.
"However, this requires alternative sources for preferably safe returns, which we would call 'safe spreads'," he said.
"Our concept of 'safe spreads' encompasses those segments, issuers, currencies and areas that, in many various scenarios, offer stable returns compared with those offered by developed nation sovereign debt."
He said the earlier status quo - where investors worried about interest rate risk when exposed to developed nations, and credit risk when exposed to emerging market bonds - had changed.
He said PIMCO remained underweight most of the European peripheral states, as progress had been made in many regarding reform proposals.
But he said it remained to be seen how effectively these would be implemented.
Bosomworth added: "The traditional dichotomy of developed and emerging nations will increasingly disappear."