Bond giant Pimco warned that investors are underestimating Donald Trump's determination to resume high tariffs in the market last month.
"He believes in Trump. He believes in tariffs," Pimco Chief Investment Officer Dan Ivascyn told the Financial Times in an interview with CEO Emmanuel Roman.
Trump imposed a "reciprocal" tax on many of his major trading partners during the "Liberation Day" event on April 2, a move that left us stocks and some corporate debts owed. A week later, the president decided to suspend most trading partners' levies on the 90-day calm market, and the S&P 500 shares index reversed the announcement-triggered attraction.
But among the bystanders of the Milken College global conference in Beverly Hills, Evans said investors were mistaken for Trump’s taxes to be withdrawn altogether or worse than previously announced.
"People still think that there will be off-road vehicles (tariffs) and we will return to the feeling that it feels more like "the day before freedom," he added. "We're not quite sure."
Still, Ivascyn noted: “We do think we will see a lower final tariff rate,” he said, and the $2TN asset manager will take a closer look at how Trump calibrates his policies based on markets and policy makers, such as the Fed’s policy makers’ reactions.
Ivascyn also said the tax could lead to “a higher price (with higher prices) when you see a slowdown”.
"We're likely to have a recession," he added. "The probability is the highest in several years."
Ifas Second’s comment came as the Fed warned on Wednesday that uncertainty over Trump’s policy on the outlook for the world’s largest economy has increased and could increase inflation and unemployment.
Pimco has been cautious about distribution economy-sensitive market areas, and Ivascyn noted that there is “a lot of bubbles or complacency” in corporate debt.
“We are there to continue to defend,” Ivascoen said.
He added that PIMCO still favors “high-quality sectors such as mortgages” with “very strong household balance sheets”. Meanwhile, PIMCO has increased slightly in the past two months with a focus on shorter maturities, he said.
Even so, Ivascyn said the volatility and uncertainty in the U.S. market and the deteriorating fiscal situation in the country have increased the attractiveness of investing in sovereign bonds in other markets.
"The United States won't lose its reserve currency situation anytime soon," Ivascyn said. "But... it's hard to see meaningful progress on flaws.
“This is combined with this tariff policy…it may lead to price levels rising here; we think it is prudent to look for other high-quality markets to diversify.”