Over the past few months, economic recoveries have been uneven across regions and sectors. In the case of the US, this has contributed to supply chain bottlenecks and a bump up in inflation. Nonetheless, at PIMCO we continue to view the factors driving the recent price surge as transitory and, as a result, haven't materially changed our broader views on the impact of the pandemic, policy, or economic growth since our March Cyclical Outlook.
So far, the market reaction to these macro developments has been generally muted, and despite higher inflation risks, the yield on the 10-year U.S. Treasury note has declined 25 basis points since mid-March. However, as we discussed at our Cyclical Forum in March, we see risks that greater macro uncertainty and volatility translate into a similar increase in volatility across asset markets. As a result, we believe it makes sense to be patient at a time of more limited high conviction opportunities and generally rich valuations, and to focus on maintaining liquidity and flexibility in our portfolios. If markets overshoot, as they tend to do, we want to have the flexibility to take advantage of these opportunities.
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