Abrdn, Pimco bet on UK government debt securities

Abrdn and Pimco are betting that increasing their investments in UK government debt securities will bring bigger returns than buying into US Treasuries amid an increasing risk of recession, according to a Bloomberg report.

The report said Abrdn has been increasing its exposure to UK gilts in recent weeks and that its opinion has been reinforced by data on Wednesday showing a bigger than expected slowdown in inflation.

The money-markets responded by raising bets for interest rate cuts by the UK central bank.

Traders are now pricing in at least five quarter-point reductions next year, with around a 60% chance of a sixth, Bloomberg reported.

“Today’s inflation print says a lot about how weak the UK economy is,” Luke Hickmore, investment director at Abrdn, told Bloomberg.

“US CPI has paused in its decline and I have long held the view that the UK would cut rates first.”

Meanwhile, US bond fund giant Pimco has made larger than usual bets on the increased likelihood that the UK economy suffers a hard landing, Daniel Ivascyn, its chief investment officer, told London newspaper The Financial Times.

He sees a greater recession risk in the UK, with consumers feeling the brunt of higher interest rates more than their US counterparts.

Abrdn’s Hickmore anticipates that yields on UK government debt will fall faster than Treasuries over the next few months.

“Gilt yields have more room to move,” said Hickmore. “Any pullback would pose a buying opportunity.”