Pimco CEO Manny Roman on Japanese Bonds and the Sell America Trade
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
PIMCO CEO Emmanuel Roman joins the Odd Lots podcast to discuss the recent market volatility that saw US stocks, bonds, and the dollar all decline simultaneously - reigniting talk of the "Sell America" trade. (01:54) The conversation covers rising bond yields globally, Japan's reflationary pivot under its new prime minister, and Trump administration policies from Greenland threats to mortgage market reforms. (02:37)
- Main Theme: Analyzing whether recent market moves signal a genuine "Sell America" trade or represent broader global trends in bond yields and geopolitical risk pricing.
Speakers
Emmanuel Roman
Emmanuel Roman is the CEO of PIMCO, one of the world's largest bond investment managers. He started his career in 1987 and has extensive experience in global fixed income markets. Roman is French and has firsthand experience with wealth tax policies during his career, giving him unique insights into fiscal policy impacts on capital flows.
Key Takeaways
Markets Are Rational Despite Headline Noise
Roman emphasizes that despite dramatic headlines about geopolitical tensions and the "Sell America" trade, actual market moves remain modest in historical context. (05:05) A 2% stock decline and 5-6 basis point bond yield increase doesn't constitute an earthquake. Professional investors should focus on structural trends rather than daily noise, as markets efficiently discount information and react proportionally to genuine risks versus political theater.
Fixed Income Offers Attractive Entry Points
With rates trading in a range for the past year and a half, Roman sees compelling opportunities in fixed income that can deliver equity-like returns of 6-7%. (06:59) This is particularly attractive given expensive equity valuations. PIMCO has seen strong flows as investors recognize they can achieve substantial returns from bonds without taking on equity-level risk, making fixed income a key portfolio allocation in the current environment.
Scale Creates Competitive Advantage in Complex Markets
PIMCO's size enables them to participate in massive deals like $25 billion data center financings that smaller players cannot access. (29:26) Roman notes that not everyone can take $25 billion off a single deal, highlighting how scale becomes a differentiating factor in structured products and new issuance markets. This competitive moat allows PIMCO to capture unique opportunities while working directly with investment banks on deal structuring.
Japan's Structural Transformation Is Real This Time
After decades of failed attempts to restart inflation, Japan has finally achieved meaningful price growth through tight labor markets and controlled immigration policies. (10:40) Roman observed increased corporate activism, conglomerate breakups, and competitive advantages in AI/robotics manufacturing during his recent Tokyo visit. Unlike previous false starts, Japan's current economic momentum appears sustainable, supported by both monetary policy changes and structural business model improvements.
AI Implementation Requires Defensive and Offensive Strategy
Roman outlines PIMCO's two-pronged AI approach: defensive applications to increase productivity in document management, trade execution, and compliance, and offensive applications using large language models to extract insights from vast datasets. (36:22) The key is reallocating resources from repetitive manual functions to research and development. Success requires humility and selective implementation rather than wholesale adoption across all business functions.
Statistics & Facts
- The S&P 500 is trading near levels Roman first saw when he started his career in 1987, with Japan's Nikkei finally exceeding those historical levels for the first time in his career. (07:48)
- PIMCO has 500 employees in their Austin office, with 90% of University of Texas graduates staying in Austin after graduation, making it an attractive talent pool for the firm. (16:28)
- The 30-day trading range for 10-year US Treasuries reached its tightest level since the 1970s before the recent volatility, while the MOVE index (bond volatility) hit lows not seen since 2021. (08:35)
