Reported about 1 year ago
Senior journalist Li Jinqi announced on June 30, 2024, at 7:18 p.m. Honeywell Asia Investment released the third-quarter bond outlook, forecasting that the overall U.S. economy may not meet rate cut conditions until the second half of the year, delaying the rate cut to September, with an estimated rate cut room of 1-2 steps this year. Investors should capitalize on the high-interest environment before the monetary policy shifts, increasing bond asset allocations. Honeywell Asia Investment's Head of Fixed Income, Zhou Xiaolan, stated that with investors' increasing risk appetite, this year, non-investment-grade bonds have performed better; the Federal Reserve's policy rate remains far above the neutral rate, and there may be further modest rate cuts next year. The market also anticipates a potential decline in the U.S. 10-year treasury yield over the next few months, but 4% remains a resistance level. Despite the high yield levels, substantial buying interest has returned, and the bond market is not expected to see the massive selling pressure observed in 2022. Zhou Xiaolan also mentioned that compared to 2018-2019, liquidity should not be a concern currently, despite the decrease due to rate hikes and balance sheet reductions. Looking at the third quarter, Honeywell Asia Investment relatively favors the performances of investment-grade and non-investment-grade bonds. Zhou Xiaolan highlighted the key risks for investment-grade bonds being the reduction of interest rates in the backdrop of weaker U.S. economic growth than expected. Better economic growth, higher interest rates, and less Fed rate-cut space would all benefit interest spreads for investment-grade bonds. Given the current strong market technicals, relatively higher U.S. bond yields, and a slowdown in supply, there are expectations for continued interest spread convergence. As for non-investment-grade bonds, Zhou Xiaolan mentioned that due to their decent fundamentals and controllable downside risks, these bonds are attractive on valuation terms. While interest spreads continue to narrow, total yield rates remain enticing, offering opportunities for absolute returns and cumulative interest accumulation. Amid moderate rate cuts, controllable interest spreads, and a mild default environment, the expectation is a close to double-digit return opportunity for non-investment-grade bonds in the next 12 months. Zhou Xiaolan noted that non-investment-grade bonds have been attracting continuous fund inflows, with fewer issuances compared to previous years. The market technical outlook remains optimistic, and interest spreads may continue to linger at relatively low levels or expand mildly. Fundamentally, many lower-quality issuers have been refinancing through private loans or bank borrowings. Future potential rate cuts are expected to benefit many industries and issuers, such as the real estate sector.
Source: YAHOO