Text on screen: PIMCO

Footer Overlay: PIMCO provides services only to qualified institutions, financial intermediaries and institutional investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized.

Text on screen: PIMCO EDUCATION –Title – Bond are Back: The 3 Fs (Pressure Points) and Moderating Inflation with John Nersesian and Tony Cresenczi (3 minutes)

John Nersesian: So investors often allocate to fixed income as a way of sidestepping or avoiding volatility, right, that they might be experiencing in other asset classes.

Text on screen: John Nersesian, Head of Advisor Education

Last year unfortunately we saw significant volatility in fixed income. Tony, you're expecting there to be less volatility this year. Explain why.

Text on screen: Tony Crescenzi, Portfolio Manager, Market Strategist

Tony Crescenzi: Well first, 2022 in the historical context is an anomaly. Remember there were 18 trillion of negative yielding bonds in the world and we simply were moving away from that regime. And the history of interest rates is a lot different. So we've normalized, so to speak. But the main reason to expect lower interest rate volatility in 2023 versus 2022 is because the forecast miss for central bank interest rates is likely to be far lower.

So for example, for the Federal Reserve, market participants along with the Fed itself were projecting that the Fed would end its policy rate at around 1 percent at the end of 2022. Of course the result turned out to be almost four points higher than that with markets now priced for 5 percent policy rate. So what are the odds that the markets get it wrong by 4 points again.

We think low, mainly because inflation — the inflation rate seems likely to be moderating based on three pressure points.

Text on screen: TITLE – The three F’s (pressure points):, BULLETS – Fed tightening, Fiscal contraction, Financial conditions

And I call them the three Fs of tightening. Number one, the Fed. Secondly, fiscal, certainly some fiscal contraction occurring now, or I should say much lower stimulus than we had certainly post-pandemic. And third, financial conditions, tighter because of higher interest rates, lower stock prices, wider credit spreads.

Those three pressure points should reduce the inflation rate, along with of course some post-pandemic related supply chain moderation. And thereby enable the Federal Reserve and other central banks to take a break.

Now what if we're all wrong about interest rates again, perhaps it'll be a half point or a full point, where the policy rate ends at 6. It's difficult for us to imagine between the Fed fund's rate change and quantitative tightening by the way, meaning the Fed reducing its balance sheet by shedding the securities it bought during the pandemic, all should work the magic so to speak.

And so we'd say the expression, don't fight the Fed today, has a different meaning from a year ago, don't fight the Fed a year ago meant run for the exits. This year it means believing in its long standing ability to control the inflation rate and to control interest rate volatility in the long run.

John Nersesian: Love it. So let me get this straight. Higher starting yields, lower volatility, that really supports the case for why bonds today.

Tony Crescenzi: Especially because it means therefore that today's yields,

FULL PAGE GRAPHIC: TITLE – Today’s yields are at a much stronger starting point. The bar chart shows yield to worst (YTW) for various fixed income asset classes. YTM is the estimated lowest potential yield that can be received on a bond without the issuer defaulting. The solid-colored bars show YTW as of December 31, 2022 at much higher starting points compared to December 31, 2021 across fixed income asset classes, namely core bonds, investment grade credit, high yield credit, emerging market bonds, municipal bonds, and high yield municipal bonds. The yields for most fixed income asset classes more than doubled in 2022 from 2021 levels.

which are above the 20 year average and roughly in line to slightly above the 30 year average for bond yields based on major indices, look relatively attractive compared to historical volatility.

And we're going to use historical volatility as our base case for the years ahead.

Text on screen: Visit pimco.com/solutions to explore solutions in every market environment

Text on screen: PIMCO

Disclosure

Past performance is not a guarantee or a reliable indicator of future results.

Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517, 11 Baker Street, London W1U 3AH, United Kingdom) is authorised and regulated by the Financial Conduct Authority (FCA) (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963, Corso Vittorio Emanuele II, 37/Piano 5, 20122 Milano, Italy), PIMCO Europe GmbH Irish Branch (Company No. 909462, 57B Harcourt Street Dublin D02 F721, Ireland), PIMCO Europe GmbH UK Branch (Company No. FC037712, 11 Baker Street, London W1U 3AH, UK), PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E, Paseo de la Castellana 43, Oficina 05-111, 28046 Madrid, Spain) and PIMCO Europe GmbH French Branch (Company No. 918745621 R.C.S. Paris, 50–52 Boulevard Haussmann, 75009 Paris, France) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 15 of the German Securities Institutions Act (WpIG). The Italian Branch, Irish Branch, UK Branch, Spanish Branch and French Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) (Giovanni Battista Martini, 3 - 00198 Rome) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland (New Wapping Street, North Wall Quay, Dublin 1 D01 F7X3) in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; (3) UK Branch: the Financial Conduct Authority (FCA) (12 Endeavour Square, London E20 1JN); (4) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) (Edison, 4, 28006 Madrid) in accordance with obligations stipulated in articles 168 and  203  to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively and (5) French Branch: ACPR/Banque de France (4 Place de Budapest, CS 92459, 75436 Paris Cedex 09) in accordance with Art. 35 of Directive 2014/65/EU on markets in financial instruments and under the surveillance of ACPR and AMF. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. | PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2, Brandschenkestrasse 41 Zurich 8002, Switzerland). The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Investment Management (Shanghai) Limited Unit 3638-39, Phase II Shanghai IFC, 8 Century Avenue, Pilot Free Trade Zone, Shanghai, 200120, China (Unified social credit code: 91310115MA1K41MU72) is registered with Asset Management Association of China as Private Fund Manager (Registration No. P1071502, Type: Other) | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. | PIMCO Japan Ltd, Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association, The Investment Trusts Association, Japan and Type II Financial Instruments Firms Association. All investments contain risk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is an independently operated and managed company. The reference number of business license of the company approved by the competent authority is (110) Jin Guan Tou Gu Xin Zi No. 020 . The registered address of the company is 40F., No.68, Sec. 5, Zhongxiao East Rd., Xinyi District, Taipei City 110, Taiwan (R.O.C.), and the telephone number is +886 2 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | PIMCO Latin America Av. Brigadeiro Faria Lima 3477, Torre A, 5° andar São Paulo, Brazil 04538-133. | No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2023, PIMCO.

CMR2023-0120-2693032