Investment Implications for Bonds

Midyear quick overview. Taken From AllianceBernstein's Midyear Report Card

Investment Implications

To echo the quote from Keynes, it’s better to be roughly right than precisely wrong. This has been our core message to clients throughout the year. Don’t get caught up on precision of forecasts, but stay focused on the macro trends so that you don’t “miss the forest for the trees.” The disinflation process is well underway, pandemic-era excesses are unwinding, central banks have kicked off easing cycles and fundamentals remain strong in the aggregate, despite modest deterioration. This means we remain on course for a soft landing, and risks are more balanced at this point in the cycle. Long-term investing requires patience, and so does generating alpha. Since our view has not materially changed, neither does our core advice:

·     Get off the Sidelines: Central bank cuts are here and the time to move is now. Cash strategies will simply reset yields lower as policymakers reduce overnight rates. The advertised annual percentage yields that investors see from cash products are unlikely to materialize. Therefore, migrate out of cash into ultra-short or short-term bond strategies..

·     Maintain a Duration Overweight: The worst for duration is likely behind us, and the probabilities tilt toward having a duration overweight in the intermediate term. As central bank cutting cycles accelerate, duration should perform well. If macro conditions weaken, duration should outperform and provide its historical hedge to growth risk. Additionally, adding to duration can lock in higher yields for longer, which should benefit investors by generating higher longer-term returns.

·     Hold Credit: Credit spreads are undoubtedly tight. However, it is for a reason. With yields at all-time highs, it still makes sense for investors to own an allocation to high-yield. For investors looking to de-risk portfolios but maintain potential returns, sourcing an allocation from equities still makes sense to us.

Should you like to discuss bonds, or any investments please feel free to give us a call.

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