PIMCO CIO Warns Of 'Hard Landing' For UK Economy

PIMCO CIO Daniel Ivascyn warned there is a strong chance of a significant economic downturn in the U.K. next year.

"We do think there's potentially more hard landing risks,” said Ivascyn. “The U.S. economy has proven to be surprisingly resilient in 2023, but the U.K. and Europe risk a more significant deterioration.”

Ivascyn was betting more on U.K. government bonds than U.S. ones because he believed the U.K. would experience more economic hardship, as reported by the Financial Times.

The U.K. economy unexpectedly contracted in October, falling by 0.3% following a 0.2% growth in September. The Bank of England revised its prediction for economic growth in the fourth quarter to flat from 0.1 earlier, citing lower household spending as one of the reasons.

A weaker economic outlook typically pulls bond yields down, thereby generating strong returns for bondholders. Since late October, U.K. government bond yields — which move inversely to prices — have already dropped significantly, with benchmark 10-year yields falling by a full percentage point to roughly 3.7%.

A weakening economy also impacts equity negatively. Investors in the iShares MSCI United Kingdom ETF EWU should keep track of economic developments coming from the UK area.

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“Global bond investing is back. It's the first time in a long time we've been excited about value and relative value in the U.K., Europe and Japan,” exclaimed Ivascyn. The Invesco International Corporate Bond ETF PICB tracks European bonds. The Invesco Global ex-US High Yield Corporate Bond ETF PGHY, the Simplify Opportunistic Income ETF CRDT and the VanEck International High Yield Bond ETF IHY help investors get exposure to international bonds.

The U.S. economy has continued to develop, in sharp contrast to the pessimistic forecasts for the U.K. and the eurozone. The U.S. equity-tracking SPDR S&P 500 ETF SPY has returned 24.35% to investors over the past year, compared to iShares MSCI United Kingdom ETF, which has returned 8.85%.

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