Pimco Takes Profit on Japan Bond Trade as Interest Rates Rise

Pacific Investment Management Co. funds that held an underweight position on Japanese government bonds are changing their stance as yields march to multi-year highs. 

Pimco has turned “overall neutral” on JGBs, according to Sachin Gupta, a 27-year investing veteran who helps oversee more than $43 billion in assets. He now sees value in 30-year bonds, whose yields have climbed to the highest since 2006 as traders expect the Bank of Japan to keep hiking interest rates this year while peers from the US to Australia ease monetary policy. 

“Rates have gone up, but they have basically gone up in line with our expectations from a while ago,” Gupta said in an interview in Singapore Thursday. “And so that’s why it makes sense to take profits and reassess.” 

Investment giants from RBC BlueBay Asset Management to Japan’s National Mutual Insurance Federation of Agricultural Cooperatives are reassessing the JGB market as borrowing costs rise to their highest levels since the global financial crisis more than a decade and half ago.

Japan’s overall inflation is around the highest among Group-of-Seven nations and bonds have sold off in tandem, spurring even some of the most bearish investors to ponder if now is a good time to buy. 

Yet there are risks given the volatility in markets and uncertainties in economies across the world. Japan’s inflation accelerated more than expected in January on higher food prices, rising at the fastest pace since mid-2023 and heaping fresh pressure on bonds. BOJ Governor Kazuo Ueda indicated he wasn’t overly concerned about the recent jump in 10-year benchmark yields, which some traders might take as a cue to sell more debt. 

Investors will be focused on the BOJ’s policy decision on Wednesday for fresh clues on the nation’s rate trajectory. Swaps traders are expecting rates to remain on hold this week, but see the BOJ hiking at least a quarter-point more before the end of the year. 

Newport Beach, California-based Gupta last year predicted the BOJ was in the early stages of its rate-hiking cycle.

Gupta, who was underweight JGBs from more than two years ago, said Japan “potentially will end up over the cyclical horizon with inflation anchored, or re-anchored, closer to 2%.”

“Because the selloff really began in the longer-end of the yield curve and they got higher there, so on a relative basis it makes sense to have some allocation to the longer end,” he said.

European Rates 

Gupta also likes gilts and Australian government debt — securities he sees gaining as growth slows. 

“Interest rates in these economies should be headed lower than where the markets are pricing,” he said, adding the “thought processes are from a cyclical standpoint.”

A major market that Gupta is underweight is European rates following Germany’s historic plan to increase defense and infrastructure spending.

“It is not just about this announcement — it’s also about the future possible fiscal action,” Gupta said. “We’ve added to that underweight in Germany. We also have now a more tactical underweight in European duration.”

With assistance from Masaki Kondo.

©2025 Bloomberg L.P.

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