Allianz Investment: Economic slowdown prompts the Federal Reserve to start cutting interest rates, optimistic about allocating short-term government bonds and high-quality credit
Allianz Investment is optimistic about short-term government bonds and high-quality credit assets, believing that the Federal Reserve's interest rate cuts will drive the allocation of core rate products. The newly appointed Global Head of Fixed Income, Zeng Zheng, pointed out that the slowdown in economic growth and weak employment data are key factors for rate cuts. Allianz Investment is focused on the impact of fiscal policy on long-term bond yields and recommends that investors consider emerging market bonds and sovereign bonds from stable countries, while maintaining an optimistic outlook on the euro. In the credit sector, despite the narrowing spreads, BBB-rated and BB-rated bonds still hold attractiveness
According to the Zhitong Finance APP, Allianz Investment's newly appointed Global Fixed Income Head, Zeng Zheng, indicated that the Federal Reserve announced a 25 basis point rate cut in September as expected by the market. One of the key factors prompting the rate cut was the weak U.S. employment data in August, along with significant downward revisions to June's data. Against the backdrop of slowing growth and rate cuts, Allianz Investment is optimistic about allocating core interest rate products and credit asset strategies, primarily focusing on short-term interest rate assets.
Allianz Investment stated that, at present, fiscal policy is the most important reference factor for assessing interest rate risk, as its impact on long-term bond yields is the most significant. Therefore, Allianz Investment believes that opportunities in the interest rate market can be considered, including single market strategies, such as positions benefiting from the steepening of the U.S. yield curve. Additionally, they are also focusing on cross-market spread strategies, preferring long-term sovereign bonds issued by countries with robust fiscal conditions (such as Spain) compared to markets under fiscal pressure (such as the U.S. and France). If directly allocating long-term interest rate assets, they tend to favor emerging market bonds that benefit from a weaker dollar and improving debt fundamentals, including those from Peru, South Africa, Romania, Egypt, and the Philippines.
In the currency market, the dollar is expected to continue facing structural and cyclical downward pressure, with another major resistance stemming from the uncertainty of the Federal Reserve's independence. Compared to the dollar, the bank holds an optimistic outlook on the euro, as the European Central Bank has a relatively high threshold for rate cuts. Furthermore, they are also optimistic about the potential of emerging market currencies that have been boosted by strong inflows of arbitrage trading funds.
In the credit sector, although spreads have begun to tighten, the fundamentals of corporations remain resilient, and systemic imbalances in major markets are relatively limited. In this context, spreads still possess attractiveness, particularly for bonds rated BBB and BB. If market volatility re-emerges, especially in the context of slowing economic growth, these bonds may exhibit better downside protection than stocks. Additionally, the high initial yields of these bonds provide investors with competitive long-term return potential, especially when default rates are effectively controlled.
Allianz Investment believes that adopting a global diversified allocation strategy in the current environment is the best way to capture investment opportunities. Although signs of a cyclical peak are emerging in the U.S., some European markets are beginning to show signs of recovery and expansion. Moreover, with the support of improving credit fundamentals, Asia and emerging markets are expected to outperform other markets
