勿失良機：進化中市場下的固定收益機遇（只備英文版）

In an uncertain economic environment and ahead of central bank rate cuts, investors have gravitated towards bond funds in the pursuit of yield and potential capital appreciation. Fidelity International’s fixed income managers believe that despite historically tight spreads in the Investment Grade space, there are still significant pockets of opportunity.

• Global investors are gravitating towards fixed income to lock in yields and position themselves for rate cuts.
• Attractive income and capital appreciation potential have fuelled US and global aggregate strategy inflows.
• US Investment Grade spreads are historically tight, but opportunities remain at the front end of the curve.
• The bond market has priced in downside risks to the US labour market and the consumer.
• Major EU and US financials show strong fundamentals and remain poised for outperformance.
• Asian US-dollar High Yield issuance presents compelling opportunities. High-grade onshore China bonds offer strong risk-adjusted returns.

As inflation eases globally, attention has turned to market expectations of rate cuts by major central banks and what these could mean for fixed income investors.

From an expected six or seven US Federal Reserve rate cuts in 2024, the market is now pricing in only one or two as economic headwinds and tight monetary policy continue to feed into the real economy. Against this ever-evolving market backdrop, where do bond investors look for opportunities?

Indeed, the hunt for yield has not cooled. Despite tight spreads in the Investment Grade market, global investors are flooding into US Investment Grade bonds to position themselves to “catch the turn” when rate cuts arrive.

Given their attractive income prospects and potential for capital appreciation, global and US aggregate strategies have been the biggest beneficiaries of this demand. G10 government bond markets have recently outperformed US government bonds due to weakening growth and inflation indicators. This sets up high-quality US fixed income markets well for a period of outperformance, should we see a suitable catalyst. Indeed, investors might want to consider longer-dated bonds, offering high capital growth potential from every 25 basis-point cut.

Attractive yields in government and corporate bond markets

Government bond yields offer value versus higher-risk assets. The income level available from quality securities such as 10-year US Treasuries, for example, is at historically elevated levels relative to dividend-yield returns from the S&P500.

Investors can earn upwards of five per cent from a single A security, which is an attractive base for any diversified portfolio and a good cushion against the current volatility in interest-rate-sensitive markets. The world will eventually move into a rate-cutting environment, which historically has been positive for fixed income capital appreciation.

Also, in the US Investment Grade segment, the long end of the curve has witnessed robust buying activity, which means credit spreads are close to the tightest we’ve seen. Still, opportunities exist at the front end, and the resulting inverted curve means attractive all-in yields.

Downside risks are priced-in

Fundamentals remain relatively healthy, with corporate leverage in the Investment Grade and High Yield markets at historic lows.

There are economic headwinds in the US, though, in the form of increased pressure on consumers and medium-term labour market risks, which means there is little margin for error in higher-risk assets. However, we believe the market has priced in downside risks to the US consumer and labour market this year, with less than 50 basis points of cuts to the US base rate priced before January 2025.

Any surprise in growth or labour market data could trigger a rapid acceleration in the cutting cycle and catalyse a spell of US bond outperformance.

In this environment, an agile approach and credit selection will remain vital.

Financials poised to outperform?

While expensive valuations in emerging-market and High Yield debt warrant defensive positions, and the US Investment Grade market remains tight, we still see pockets of opportunity in corporate bonds. Given their robust fundamentals, we like the financial sector, especially European “national champion” banks and large US lenders.

Asia adopts a ‘wait-and-see’ approach

In Asia, most central banks are cautious about rate cuts despite high positive real yields. They await clearer signals of easing from the US before making significant policy adjustments. On the other hand, ongoing reflation in Japan is fuelling expectations of a rate increase.

In a global context, Asian US-dollar High Yield bonds present compelling opportunities as they benefit from attractive valuations, moderate duration, and stable fundamentals.

High-grade onshore bonds in China also present attractive risk-adjusted returns, aided by a dynamic economic backdrop, monetary easing, and subdued inflation. Medium duration high-quality China onshore bonds, on a US-dollar-hedged basis, have the potential to deliver robust, high single-digit total returns over the next 12 months. Their low correlation with global assets also makes them an appealing diversification tool.

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