PIMCO | 2026 investment outlook: Global multi-sector fixed income

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[PIMCO 2026 investment outlook: Global multi-sector fixed income CIBC Diversified Fixed Income Fund]

[Featuring Prerna Gupta, Senior Vice President and Fixed Income Strategist, PIMCO]

My name is Prerna Gupta, and I'm a senior vice president and fixed income strategist at PIMCO. Let's start with the 2026 outlook for fixed income overall. The fixed income opportunity set, supported by high starting yields and attractive valuations relative to equities, appears attractive today, with central banks globally poised to cut interest rates further. PIMCO believes that locking in today's attractive bond yields presents a compelling opportunity to support income returns and potential price appreciation in the years ahead.

When considering valuations from a multi-year perspective, we believe a high quality, globally diversified fixed income portfolio remains quite attractive today, especially when you consider the elevated equity valuations and tight credit spreads. Moreover, with the Fed expected to cut rates further in 2026, the return on cash is coming down. We believe investors should consider stepping out of cash instruments, which can add duration and support higher yield potential.

Amid ongoing policy uncertainty, we must consider a range of possible outcomes. So, it makes sense to focus on a diversified set of investments and to prioritize portfolio resilience, in our view. We believe bond allocations must remain an anchor for investment portfolios in this environment, providing stability and a potential hedge against elevated equity market risks. From a positioning perspective, the CIBC Diversified Fixed Income Fund looks to take advantage of the full toolkit we have as active global investors to target more liquid and higher quality areas of the market, and to construct a highly diversified portfolio of income-oriented assets.

From a duration perspective, the fund has about four and a half years of headline duration exposure. We continue to emphasize US duration with about 4.1 years of exposure there but also maintain selective exposure in other high quality sovereign bond markets that have attractive yields, such as the UK and Australia. As we see somewhat divergent policy paths ahead, given different macro factors weighing on markets locally. The CIBC Diversified Fixed Income Fund also holds small diversifying allocations to select EM countries with relatively high-quality balance sheets, such as Peru and South Africa.

The portfolio also has modest exposure to US Treasury inflation protected securities, or TIPS, to help hedge the portfolio against any potential upside surprises in inflation. From a credit sector perspective, we maintain our general preference for securitized assets relative to generic forms of corporate credit. We continue to like agency mortgage-backed securities. They have been trading at wider spreads in investment grade corporates, which is highly unusual as corporates tend to be more sensitive to economic fundamentals.

Also, the market for agency mortgage-backed securities offers an attractive liquidity profile, enabling us to remain quite nimble. We also favour senior structured credit and investments linked to higher income consumers. In aggregate, the US consumer is in a good position after years of positive home price appreciation and balance sheet strengthening in the more carefully regulated markets that followed the global financial crisis.

Overall, corporate credit spreads are quite tight, but we do seek to be opportunistic in the sector, looking for unique credit situations where we can leverage the firm's size and sourcing capabilities to find investments that are more attractive than generic forms of corporate credit. Related to currencies, the fund holds long exposure to a basket of emerging market currencies, including the Mexican peso and Brazilian riyal, versus the Canadian dollar.

For additional diversification, we recognize currencies can be more volatile than other assets, so we scale these positions appropriately. In relation to credit quality, more than 85% of the fund is invested in IG rated securities. Thus, if there is an unanticipated shock to markets or the economy, while that's not our base case, we believe the CIBC Diversified Fixed Income Fund is positioned to remain resilient. It's poised to mitigate the downside and maintains the flexibility to pursue attractive opportunities in that kind of environment.

[The information contained in this material are the views of PIMCO and compiled by CIBC Asset Management Inc., as of December 11, 2025 and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This material is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, it should not be relied upon in that regard or be considered predictive of any future market performance, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this material should consult with their advisor.

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A word about Risk: All investments contain risk and may lose value. 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. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government, government-agency or private guarantor, there is no assurance that the guarantor will meet its obligations. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Investing in distressed companies (both debt and equity) is speculative and may be subject to greater levels of credit, issuer and liquidity risks, and the repayment of default obligations contains significant uncertainties; such companies may be engaged in restructurings or bankruptcy proceedings.

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, 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.

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