Schroders Investment: The Federal Reserve's interest rate direction expectations remain unchanged, and the global bond market will benefit from a more accommodative interest rate environment

According to the Zhitong Finance APP, Schroders Investment stated that the outcome of the 2024 U.S. presidential election has been settled, but investors should not overlook that even during the election period, U.S. economic growth remains strong. Therefore, any easing of fiscal policy will make the Federal Reserve's task of bringing inflation down to target levels more difficult and will increase the risk of the economy not landing softly. This will lead to rising bond yields, poor performance of U.S. bonds, and a continued strengthening of the dollar. Fortunately, the market has begun to react to the post-election economic re-inflation risks before the election, so there has not been a further rise in bond yields recently. Although fiscal policy may continue to change in the medium term before Trump officially takes office, concerns about the global trade cycle are expected to impact regions such as Europe, leading to a continued decline in the euro against the dollar, and the duration of European bonds will continue to outperform other regions. Currently, the U.S. macroeconomic indicators still point to a higher chance of a soft landing, so the Federal Reserve's decision to cut rates by 50 basis points in September and another 25 basis points in November aligns with previous expectations. As for whether there will be another rate cut before the end of 2024? Although the market is cautious about economic re-inflation, Schroders holds the view that there is a chance for another 25 basis point cut in December. In response to these uncertainties, in terms of bond types, there is a continued preference for high-quality investment-grade corporate bonds, as these companies are generally better able to cope with economic downturns and benefit from lower operating costs due to declining interest rates. Regionally, European valuations are more attractive than those in the U.S., with higher potential for bond price increases. Overall, there is a cautious stance on high-yield bonds, as valuations are under pressure, and if the macroeconomic environment deteriorates, downward risks need to be noted. In the Asian bond market, benefiting from higher yields and significantly reduced default risks this year, Asian bonds have performed well. Among them, there is a relative preference for sectors such as finance and banking that have enhanced profitability due to the high-interest environment, and there is active exploration of high-quality corporate bonds from Australia and Japan. Chinese dollar bonds will require further fiscal stimulus to support broader economic growth, especially in the real estate market. In the long run, as long as the confidence of households and businesses can be restored, it will drive real demand and strengthen market investment sentiment. Post-election, investors in the U.S. have greatly increased their confidence in risk assets, believing that the new U.S. president and government will adhere to the goal of boosting economic growth, thereby continuously revitalizing the performance of U.S. and global stock markets. In contrast, bond investments may be constrained by re-inflation risks, leading to inferior investment valuations. Schroders does not agree with this view; in a re-inflation environment, investors should be concerned about interest rate risks rather than credit risks. Government bonds, which are highly sensitive to interest rates, may indeed be affected in terms of bond price performance, but corporate bonds with optimistic profit outlooks actually have growth potential, just as buying stocks is based on the expectation of corporate growth. It is expected that before the end of 2024, a more accommodative interest rate environment will emerge, benefiting the global bond market. There will be a flexible approach to interest rate allocation, patiently waiting for more clear information from the Trump administration regarding its intentions towards Europe