Markets have few certainties at the moment, but one stands out: everyone hates government bonds. Fear, loathing, war . . . all that bad stuff normally pushes jumpy investors into the warm, comforting arms of the safest markets on earth, chief among them US Treasuries. This time is different.
The scale of discombobulation among investors is clear in a note this week from Pimco. The team there agreed that Russia’s invasion of Ukraine, the resulting sanctions, and the strains in commodity markets have “cast an even thicker layer of uncertainty” on an already tricky environment marked by the stop-start recovery from the Covid-19 pandemic. This is not any ordinary outbreak of nerves, said Joachim Fels and Andrew Balls at the bond fund manager.
“In contrast to risk, which can be quantified by assigning probabilities to outcomes based on experience or statistical analysis, uncertainty is essentially unmeasurable and represents the unknowable unknowns,” they wrote. “In a radically uncertain environment, detailed point forecasts are therefore not particularly helpful in shaping investment strategy.”