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Jeffrey Hutton is a Morningstar contributor.

Political gridlock and European debt woes have boosted the prospect of a recession next year in the United States to as high as 50 per cent, says bond investor PIMCO.

The fund manager has also scaled back its growth forecast for China to as low as 6 per cent. Failure by US politicians to lower the country's debt and rekindle growth puts the world's largest economy at a 30 per cent to 50 per cent chance of recession in 2012, one of the company's senior managers said.

Heightened uncertainty and slower growth in emerging markets calls for closer scrutiny of investments, says David Fisher, PIMCO's executive vice president and head of global product management.

"Investors have to be nimble," Fisher said on a conference call on Wednesday to advisers.

"The days of 'set and forget' are over."

Defensive assets such as high-quality sovereign debt and investment-grade corporate debt will increasingly be in demand. Fisher says slow growth and willingness by some central banks to effectively print money to repay debt - known as quantitative easing - will keep interest rates low in most markets for at least 2012.

"Ultimately, there's only one way for interest rates to go and that's up because most markets are at zero or close to it," Fisher says.

"We don't believe they are headed higher for the next couple of years."

US political gridlock and failure to contain debt woes within parts of the eurozone will have investors scurrying to so-called safe-haven investments such as Australian government debt.

Despite its underlying political problems, US debt will retain its safe-haven status because of its liquidity, the ability of its issuing government to print money, and the lack of an alternative.

"It's still the cleanest dirty shirt in town," Fisher says.

Even so, with Italian debt increasingly expensive, investors may no longer assume debt from rich countries is risk free, says Clive Smith, fixed income portfolio manager for Russell Investments.

Bond yields on Italian three-month debt are approaching 8 per cent, recent data shows.

"US Treasuries continue to maintain their safe-haven status," Smith says.

"Once we see debt problems ebb in Europe, investors may turn their attention to the US."

PIMCO's Fisher says he and his colleagues have been taken aback at the ideological impasse in Washington, as right-wing politicians refuse tax increases and left-leaning policy makers insist on protecting entitlements.

The so-called super committee of US congressional politicians failed to find $1.2 trillion in savings over 10 years, or roughly 10 per cent of the expected debt pile over the coming decade. The debacle heightens the chance of further US credit downgrades, Fisher says.