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Fixed income markets: When the stars align
Flavio Carpenzano
Haran Karunakaran
Manusha Samaraweera
September 9, 2024
Bonds are back has been a common refrain in financial markets for the last year or so and this sentiment has been validated by fixed income results. Global core bonds have returned 7.5% over the last 12 months, while global credit has been even higher, delivering 9.5% for investment grade and 15% for high yield1.
These results may cause some investors to wonder whether they have missed the boat; has the opportunity in fixed income passed? To that, our answer is an emphatic no; in fact, we believe the opportunity is just getting started. The combination of high starting yields and a supportive macro backdrop means the stars could finally be aligning for fixed income markets.
Bonds now offer compelling investment opportunities alongside continued lower inflation and central banks entering the easing cycle. They are also once again providing diversification from equities, as highlighted by recent market volatility.
We favour higher-quality credit bonds, which we think could deliver high single — to low double — digit total returns over the next few years, driven by a combination of income and price appreciation from yields dropping.
Yields are similar to 2023 levels, but inflation is significantly lower
Past results are not a guarantee of future results.
Data as at 31 July 2024. Source: Bloomberg. Index: 10-year US Treasuries, Bloomberg Global Aggregate Corporate Index, Bloomberg US High Yield 2% Issuer Cap Index and JP Morgan EMBI Global Diversified Index. US CPI is based on the latest available print on 11 January 2024. CPI: Consumer Price Index. HY High Yield, EM HC: Emerging Markets Hard Currency. UST: US Treasury
1. As of 30/8/2024. Based on Bloomberg Global Aggregate Total Return USD Hedged, Bloomberg Global Aggregate Corporate Total Return USD Hedged and Bloomberg Global High Yield Total Return USD Hedged indices respectively.
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Past results are not predictive of results in future periods. It is not possible to invest directly in an index, which is unmanaged. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.
Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.