PIMCO is shunning UK government debt on the view post-election borrowing by the main political parties could pile pressure on gilt prices.
PIMCO's chief investment officer for global fixed income Andrew Balls told the FT gilts are already one of the bond investment giant's "least favourite" markets due to the low yields available, with the potential for gilt sales increasing to fund government spending making them even less attractive.
"Gilt yields look too low in general. If you don't need to own them it makes sense to be underweight," Balls told the FT.
It is thought the election on 12 December could drive the biggest boost to public spending since the mid-1960s, with the Conservatives promising to use low interest rates to finance "an infrastructure revolution", the Liberal Democrats seeking a £100bn capital investment increase and Labour planning to substantially increase the amount of money it would borrow for capital spending in its first term if elected.
The 10-year gilt yield has now reached 0.76%, from 0.42% in early October, which is unattractive compared with the 1.84% yield available on the equivalent US government bond, Balls said. Pimco, which holds over $1.8trn in assets, is underweight gilts compared to the bond benchmarks.
This article was first published by Investment Week, a sister title to International Investment.