Amundi Asset Management: Market interest rate risk remains unclear, short-duration bonds have a clear risk-return advantage
Amundi Asset Management pointed out that the current market interest rate risk is unclear, and the risk-return advantage of short-duration bonds is significant, making them suitable for reviewing portfolio allocation. The inverted yield curve makes short-term fixed income instruments more attractive, and it is expected that the Federal Reserve will maintain an accommodative monetary policy in 2025. Despite the unclear factors in the market, short-term bonds can provide investors with the opportunity to lock in yields and buffer against potential market sell-offs. Fixed income should be viewed as a core part of the portfolio to enhance stability
According to the Zhitong Finance APP, Amundi Asset Management stated that the widespread inflation in recent years has prompted global central banks to change their policies. The market has fluctuated repeatedly over the past few years and is filled with unclear factors, leading many investors to choose cash-like investments. The firm believes that the yield curve inversion (where short-term bond yields are higher than long-term bond yields) and the continued attractiveness of short-duration bonds may be an ideal time to review current portfolio allocations, considering the risk-return advantages of short-term fixed income instruments.
Amundi expects that the Federal Reserve will maintain an accommodative monetary cycle in 2025, but the pace will be slower than expected, and as the yield curve gradually normalizes, the favorable environment for money markets and cash deposits will change.
Short-term bonds provide an attractive entry opportunity, allowing investors to temporarily lock in yields while providing a buffer against potential market sell-offs.
Compared to long-term bonds, short-duration bonds have lower volatility and sensitivity to interest rate changes, which may be particularly appealing to investors in a market still characterized by uncertainty.
Moreover, the current uncertainties are not limited to geopolitical risks but also include the potential impact of the new fiscal and trade policies in the U.S. on inflation, the Federal Reserve's decisions, and yield fluctuations, especially in long-term bonds.
Although the current environment may be challenging, it also presents opportunities for savvy fund managers to demonstrate their ability to generate excess returns.
The firm believes that fixed income should once again be viewed as a core part of the portfolio, as these assets have the capacity to provide attractive risk-adjusted returns and can enhance portfolio stability, especially during periods when the correlation between stocks and bonds shows signs of decline