(Reuters) - Pacific Investment Management Co is getting out of Canadian government bonds, saying higher yields are needed to compensate for the risk of buying debt after a surprise interest rate cut by Bank of Canada, Bloomberg reported.
Ed Devlin, who heads the investment manager's Canadian portfolio, said investors needed a bigger risk premium. "If you don't know what they're going to do, you should get paid more money to invest in them than if they were fairly predictable," Devlin told Bloomberg. (bloom.bg/1E62Fvv)
Bank of Canada Governor Stephen Poloz stunned markets by cutting interest rates in January, citing a threat to economic growth and its inflation targets from the drop in oil prices.
Investors anticipating another cut were caught off guard when Poloz said in February that the bank took out the right amount of “insurance” when it cut interest rates by one-quarter percentage.
Devlin said he was reducing his allocation to federal government bonds in favor of provincial bonds, inflation-linked debt and bank deposit notes, Bloomberg reported.
PIMCO was not immediately available to comment on the Bloomberg report.
Yields on two-year Canadian bonds have swung in a 20 basis-point range since the cut, Bloomberg said.
Poloz’s policies has made life more challenging for financial market forecasters, with an approach some say lacks enough guideposts to allow them to properly model the path of future interest rate moves.
Reporting By Shubhankar Chakravorty in Bengaluru; Editing by Don Sebastian