Bond market outlook: Interest rate cuts and further yield declines?
Our fund management team for bonds still expects that the bond markets will see further gains as the year progresses despite the recent softening of bond prices. Over the next six to twelve months, we will very likely see lower yields for all terms. Exaggerated expectations for interest rate cuts were priced out over the past weeks, or priced in at a later time – especially in the USA. However, inflation is still retreating, even though many had apparently been expecting the downtrend to be steeper. All indications suggest that inflation will come very close to the 2% target of the ECB in the next six to twelve months. You can read more about bond funds below.
The disinflationary trend is also still intact in the USA, but is considerably flatter. The US economy is also stronger than the Eurozone economy. It would be unusual in historical comparison, but it is entirely possible that the ECB will start cutting its key rates before the Fed this time, potentially in June. We feel that key rate cuts totalling 0.75% to 1% are realistic and likely by the end of the year. Despite the continued significant robustness of the US economy, we expect the economic momentum to slow in the coming months, both in the USA and in the global economy. But we still see no signs of a significant economic downturn in the USA or Eurozone.
A significant portion of the potential earnings on the bond market will likely come from coupons this year. The bond markets currently offer attractive returns in virtually all maturity ranges and in many market segments, which is a stark contrast compared to the last decade. In fact, the markets are currently characterised by a fairly rare situation in which short-dated bonds are offering significantly higher yields than their long-dated counterparts.
Government bonds from the Eurozone periphery fared better than those from the core countries in 2023. This is not likely to be repeated in 2024. However, the fund management does not expect spreads for the periphery countries versus German Bunds to widen significantly this year.
Bond markets in detail
Rosy prospects for corporate bonds
Bonds undoubtedly had an extremely difficult year in 2022, so many investors had even higher hopes for a positive trend in 2023. And, as it happens, bond investments have indeed gained in value since the start of the year. But what do the next twelve months have in store?
Positive long-term outlook for Emerging Market bonds
In the wake of the rise in US bond yields, Emerging Market bonds have also come under increased pressure since the summer. They had delivered quite attractive performance up until then and offer solid risk-return profiles at the current levels, provided they are selected carefully.
A good time to enter the high yield bond market?
High yield bonds (i.e. bonds from issuers with lower ratings, thus making them riskier) have been a sought-after investment instrument for a long time. And they appear to offer very attractive returns at the moment as well. Is it the right time for an investment in high yield bonds?
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Bond funds
Bond management is one of Raiffeisen Capital Management's longest established core competencies.
Raiffeisen-ESG-Global-Rent: Invest sustainably across the world
Bond investments have enjoyed modest-to-good value growth since the turn of the year, thanks mainly to a significant renewed rise in interest income. But what might happen over the next twelve months, and what are our predictions for the global bond markets?
Raiffeisen-Nachhaltigkeit-Rent: No need to fear the interest rate turnaround
It has frequently been a topic of discussion for years now, sometimes as a source of hope and sometimes as a cause for concern: the “interest rate lift-off”. Now it is finally here and has resulted in massive price and yield movements. Raiffeisen-Nachhaltigkeit-Rent seeks out and takes advantage of opportunities even on these turbulent bond markets.
ESG-transformation of the Emerging Market bond markets
The Emerging Markets present a number of major challenges for investors when it comes to sustainability and ESG-criteria. However, understanding and overcoming these challenges also opens up significant opportunities, both in terms of earnings and promoting a transition to sustainable business practices in the Emerging Markets.
Sustainable profits form the comeback in yields
Raiffeisen Capital Management’s new, fixed-term fund, Raiffeisen-Mehrwert-ESG 2028 II, was starting up in an attractive yield environment, since tangible returns are now possible after many years of zero or negative interest rates. Another positive aspect is that the fund only invests in sustainable enterprises.
Sustainability competence meets bond expertise
Raiffeisen-Euro-Corporates is going sustainable as of 19 September 2022, because the fund will take ESG criteria into consideration starting on this date. There are many good reasons to add sustainability criteria to the decision-making process – including from a risk-return perspective. At the same time, the massive yield increases that have been seen recently open up new return opportunities for investors.
The investment strategy permits the Raiffeisen-Nachhaltigkeit-Rent to predominantly (relative to the associated risk) invest in derivatives.
As part of the investment strategy, starting six months before the end of the term, the Managemetn Company is permitted to invest primarily in demand deposits or deposits with the right to be withdrawn.
The Fund Regulations of Raiffeisen-Inflationsschutz-Anleihen, Raiffeisen-Nachhaltigkeit-Rent, and Raiffeisen-ESG-Global-Rent have been approved by the FMA. The Raiffeisen-Inflationsschutz-Anleihen may invest more than 35% of the fund's volume in securities/money market instruments of the following issuers: France, Netherlands, Austria, Belgium, Finland, Germany. The Raiffeisen-Nachhaltigkeit-Rent may invest more than 35% of the fund's volume in securities/money market instruments of the following issuers: France, Netherlands, Austria, Italy, United Kingdom, Sweden, Switzerland, Spain, Belgium, United States, Canada, Japan, Australia, Finland, Germany. The Raiffeisen ESG Global Bonds may invest more than 35% of the fund's volume in securities/money market instruments of the following issuers: United States, Japan, Germany, France, United Kingdom.
As part of its investment strategy for Raiffeisen-Mehrwert-ESG 2028 II, six months or less prior to the end of the fund’s term, the management company may mainly invest in sight deposits.
As of April 2024