Pimco, which runs the world’s largest bond fund, says it is shying away from the countries’ debts due to growing budget deficits.
Pimco managing director Paul McCulley says: “We are currently cutting back in the US and UK because supply and demand dynamics are likely to be negatively affected as borrowing rises and central bank buying declines.”
McCulley says the firm is becoming more risk adverse in 2010 as economies continue to be depressed and GDP figures remain low. He says consumers will be unable to augment personal income by borrowing, so consumption must grow in line with personal income, and when coupled with a muted housing market and the risk of unemployment, it will mean GDP growth in the UK and the USA struggles through the year.
He says: “We have to be incredibly cognizant of lingering uncertainties. Because of that, our risk-taking is tamer than it would be if we had a normal distribution of expected outcomes. You can only eat what’s in the cafeteria, and right now the cafeteria doesn’t have anything particularly appetising in it.”