Convictions

Bonds’ appeal amid peaking rates

Let’s discover why bonds are making a huge comeback

A female tourist admiring a lighthouse in the sunset

As the growth picture deteriorates, with inflation coming down, investors should price in rate cuts for 2024. In this scenario, owning duration could be rewarding, both from capital appreciation and yield perspectives. Nevertheless, timing is essential. In addition, the recent downward movement in yields has indicated that investors should remain active and flexible.

In credit markets, the focus should be maintained on quality, with a preference for investment grade, and also for higher credit quality within the high yield space. Fundamentals show some deterioration, but credit metrics still look sound from a historical perspective, mainly thanks to positive margins supported by higher pricing power and lower input costs. 

With expectations of an upcoming slowdown in US and Europe, it is all the more important to focus on high quality companies that would be able to absorb the higher interest rate burden and pressures on cash flows.

Amundi 10y yield forecasts, +12 months

Graph: Amundi 10y yield forecasts, +12 months

Source: Amundi Investment Institute, Bloomberg. Data is as of 12 January 2024. Forecasts are by Amundi Investment Institute.

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Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of end of January 2024. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.

Date of first use: 2 February 2024

Doc ID: 3368819

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