Odd Lots

Dan Ivascyn Is Excited About a New Era in Fixed Income

December 8, 2025

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  • The bond market in 2025 offers attractive absolute and relative valuations compared to equities, suggesting bonds may outperform stocks over the next decade, even without relying on correlation arguments. 
  • Credit underwriting complacency has set in following a long period of strong economic growth, meaning investors must be highly selective and skeptical, especially in private credit, as they are no longer being paid sufficiently for taking on lower quality risk. 
  • Policymakers tend to avoid regulating or bailing out the same sectors twice, suggesting that post-Global Financial Crisis regulatory focus on consumer lending will likely shift scrutiny toward the rapidly growing areas of non-financial corporate and private market lending. 
  • The perception of safety at the far end of the risk curve is being questioned, suggesting a potential shift in investor mindset regarding long-duration assets. 
  • The booming private credit market faces significant competitive pressures on both the lending and credit rating sides, tempting participants to accept lower terms or quality to accumulate assets. 
  • Firms promising astonishing returns in private credit must deliver those returns on a risk or value-adjusted basis, as deal availability is not guaranteed simply by market entry. 

Segments

Fed Outlook and 2026 Rates
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(00:06:02)
  • Key Takeaway: PIMCO expects the Fed to cut rates by about half a percent in 2026, but aggressive easing into strengthening data risks a sell-off at the long end of the curve.
  • Summary: The Federal Reserve is likely to cut rates at the upcoming meeting and desires lower rates into 2026, but economic reacceleration and inflation above targets could cause the Fed to pause cuts. PIMCO forecasts approximately 50 basis points of rate cuts next year, though a strengthening economy could lead to a self-defeating sell-off in longer maturities if the Fed cuts too aggressively.
Assessing Fed Independence Risk
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(00:09:05)
  • Key Takeaway: Uncertainty around Federal Reserve independence requires investors to price in a slightly higher risk premium, particularly in longer maturities.
  • Summary: While Fed independence has historically been less of a concern, current political dynamics necessitate monitoring, as a less independent Fed implies greater uncertainty in policy rate setting. However, the candidates being considered are generally viewed as highly qualified and likely to maintain a spirit of independence regarding monetary policy.
Inflation Target Credibility
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(00:10:52)
  • Key Takeaway: The Fed is likely willing to look through current inflation above 2% as long as longer-term inflationary expectations remain well-contained around 2.25%.
  • Summary: The 2% inflation target matters less than the market’s long-term inflationary expectations, which are currently well-behaved (e.g., 10-year tip break-even near 2.25%). If these longer-term expectations become unanchored, the market reaction could involve higher long-term rates and negatively impact risk assets.
Term Premium and Duration Appeal
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(00:13:35)
  • Key Takeaway: The term premium is elevated relative to the last decade due to inflation and debt levels, making longer maturity investments more attractive on a risk-adjusted basis.
  • Summary: PIMCO sees an elevated term premium, driven by inflation and global debt levels, which increases the attractiveness of longer maturity bonds compared to the previous decade. Despite this, the firm remains concentrated in shorter maturities, expecting slight underperformance from the very long end of the yield curve over the next few years.
Valuation Case for Bonds Over Stocks
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(00:18:31)
  • Key Takeaway: Based purely on starting valuations, bonds are positioned to outperform stocks over the next five to ten years, despite the breakdown of the traditional stock/bond correlation.
  • Summary: Over the last decade, U.S. stocks returned about 15% annually while core bonds delivered negative real returns, but current relative valuations suggest bonds are now quite attractive. Diversified investors should expand fixed income exposure because the math supports outperformance, even if correlations remain less clean than in the pre-inflation era.
Global Investing and Policy Flexibility
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(00:22:19)
  • Key Takeaway: Global bond investing is back because policymakers globally lack the massive fiscal and monetary flexibility they deployed post-GFC, forcing markets to rely more on fundamentals.
  • Summary: The ‘Sell America’ trade was resisted due to the sufficient yield cushion in U.S. fixed income starting the year near 5% on 10-year Treasuries. Global fixed income offers great yield and diversification today because many international markets, unlike the post-GFC era, are repricing from negative yield levels and face constraints on policy activism.
Private Credit Structure and Risk
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(00:27:14)
  • Key Takeaway: The massive growth in private credit post-GFC, fueled by easy credit conditions, means investors are not being compensated adequately for taking on economic sensitivity and weak covenants.
  • Summary: The technology used in modern AI infrastructure financing, like contingent make-whole guarantees, is structurally similar to past private asset underwriting from the 1990s. Since the GFC, lower-quality credit has generated 7% more return annually than high-quality bonds, leading to complacency where investment-grade ratings may not reflect true fundamental credit quality.
Credit Cycle and Regulatory Shifts
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(00:43:38)
  • Key Takeaway: Credit market disappointment is likely in areas that performed exceptionally well over the last decade, as regulators avoid bailing out the same sectors twice, shifting scrutiny away from corporate lending.
  • Summary: While isolated credit challenges exist, the current environment is characterized by disappointment rather than catastrophe because the household balance sheet is strong, unlike the GFC focus on consumer lending. Regulatory scrutiny has lessened on non-financial corporate lending, which has grown significantly, creating opportunities for active investors who underwrite for weaker economic environments.
Housing Outlook and Affordability
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(00:47:26)
  • Key Takeaway: PIMCO is bullish on housing-related investments due to strong household equity, but national home prices will remain elevated and affordability constrained without significant new housing unit construction.
  • Summary: Agency-guaranteed mortgages offer high quality and liquidity, and non-guaranteed lending is protected by borrowers holding record equity levels (up to 70 percentage points). Home prices are expected to moderate slightly in real terms, but low locked-in mortgage rates will suppress turnover, keeping prices historically elevated and affordability tight for younger Americans.
Political Economy Driving Markets
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(00:50:48)
  • Key Takeaway: The investment landscape has shifted from economic outcomes driving politics to political and geopolitical tensions driving economic outcomes, demanding greater humility and global diversification.
  • Summary: Political priorities and geopolitical tensions are now primary drivers of economic outcomes, exemplified by tariff policy and reshoring efforts. Investors must diversify globally, tilting toward countries with better fiscal pictures (like Australia or Germany) or high-quality emerging markets that offer attractive yields and diversification against U.S. asset performance.
PIMCO Culture Evolution
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(00:54:47)
  • Key Takeaway: PIMCO has evolved into a more specialized, global firm leveraging technology and data to adapt to evolving client needs and the expanded private credit opportunity set.
  • Summary: Despite Bill Gross’s departure in late 2014, the firm maintained its core belief in teamwork and utilized his established decision-making frameworks. Adaptation was necessary due to market specialization, the rise of private credit, and the reduced cost of accessing big data and automated trading strategies.
Safety at Risk Curve End
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(01:01:52)
  • Key Takeaway: Investor perception regarding safety at the far end of the risk curve is being re-evaluated.
  • Summary: There is discussion regarding the long-held belief that significant safety exists at the far end of the risk curve. The burnishing of this perception among investors is noted as an interesting development. This suggests a potential re-assessment of risk tolerance in those areas.
Private Credit Promises Scrutinized
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(01:02:07)
  • Key Takeaway: Private credit returns must be achieved on a risk or value-adjusted basis, not just promised.
  • Summary: The segment highlights private credit firms promising astonishing returns to investors. A critical point made is that these returns are contingent upon the availability and suitability of deals, requiring execution on a risk or value-adjusted basis. The entry of major players like Capital Group confirms the market’s booming nature.
Market Competition and Quality
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(01:02:41)
  • Key Takeaway: Intense competition in private credit drives temptation toward accepting lower quality and terms.
  • Summary: The private credit market is experiencing intense competitive pressures on both the lender and credit rating sides. This environment creates a strong temptation for participants to accumulate assets by accepting lower quality standards or less favorable terms. This scramble reflects the high demand to enter and capture market share.
Podcast Sign-off and Credits
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(01:03:00)
  • Key Takeaway: The hosts conclude the episode of Odd Lots and provide listener engagement channels.
  • Summary: Hosts Tracy Alloway and Jill Weisenthal conclude the discussion, directing listeners to follow them and their producers on social media. Listeners are encouraged to find more content via the Bloomberg website, join the Discord community, and leave positive reviews on podcast platforms.
Sponsor Advertisements
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(01:04:18)
  • Key Takeaway: Advertisements promote senior living, technical training, and community pharmacy services.
  • Summary: Brightview Senior Living in Tarrytown promotes assisted living and memory care services, offering incentives for early financial commitment. Lincoln Tech advertises career training in fields like advanced manufacturing and automotive, emphasizing hands-on lab work. CVS emphasizes its commitment to community presence, offering prescription fulfillment and convenient retail options.