Amaury D’Orsay, director of bond management for French manager Amundi, is present elEconomista.es during a key week for the markets, marked by Donald Trump’s victory in the US presidential elections and by the meeting of the Federal Reserve, which ended, unsurprisingly, with a second cut in interest rates, that of -this by 25 basis points.
The yield on US 10-year bonds is currently around 4.3%, after falling more than 4% this year. Are we facing a historic opportunity to enter?
It depends on your time horizon. Tactically, in the short term, yes, this is a good opportunity to buy 10-year US Treasuries. There are risks around the T-Note, such as fiscal policy, the deficit, some form of inflationary pressure in the long term… But, in the short term, I think it is a good entry point.
Do you think the return on this asset will reach 5% at some point?
In the next six months, no, that’s not my main scenario. From the 4.50% it reached, I see a much higher probability of it reaching 4% rather than 5%. […] There are certain certainties. The Federal Reserve and the ECB are reducing interest rates to normalize the yield curve and will continue to do so. That’s a certainty. But when it comes to fiscal policy, the uncertainty is greater. The question is: at 4.50%, are these uncertainties already sufficiently valued? These risks already existed a month and a half ago, with the bond at 3.75%, but the market did not price them well. At 4.50%, their valuation is attractive and it is an opportunity for investors to assume this risk.
After the 25 basis point cut decided by the Fed this Thursday, how many cuts do you foresee for the rest of the year and for 2025?
We expect a further cut in December and for 2025 we have higher expectations than the market, since we think the terminal rate could go down to 3%.
“After Trump’s victory, inflation-indexed bonds are a very good opportunity”
When it comes to corporate debt, which type of bonds do you prefer, Investment Grade or High Yield?
We have moved towards investment grade over the last two years and we still prefer it. The first reason for this, beyond to carry In addition to the public debt, the balance sheets of large companies are historically in a very good situation. The second reason is that we are entering a cycle of lower rates in which they will benefit from a better monetary environment. In addition to this, there is another major positive aspect related to supply and demand. Over the past two years, retail investors, who were excluded from the fixed income market due to the negative rate environment, have returned in force. And they came back buying credit, not government bonds. This has profoundly changed the dynamics of the credit market, with strong demand but more supply. And we don’t expect this dynamic to fade anytime soon. All of this pushes us to maintain a very positive stance on Investment Grade issuers and credit.
What other reasons do fixed income have in their favor right now?
At this rate level, the dividend yield in the United States is lower than that of 10-year Treasury bonds. We haven’t seen this in 20 years. It’s really important. In contrast, when inflation soared in 2022, fixed income did not play its diversifying role, as it once did in traditional portfolio allocation. And I think that now this asset will play this role again in balanced portfolios, and we will return to the basic 40/60 allocation pattern.
“The retail investor, who no longer relied on fixed income, came back and did so by buying corporate bonds, not Treasurys”
What types of bonds are most vulnerable to Donald Trump’s victory in the US election?
There is one type of bond that we really like and that Trump’s victory makes even more valuable: inflation-indexed bonds. Today, the market does not give much more importance to inflation than in recent years, even if there are currently more risks of long-term inflationary pressures, linked to the energy transition, demographics, to deglobalization… Trump’s victory adds more reason to see higher inflation, as many structural problems are changing and the market is not fully reflecting them. However, we believe that inflationary bonds constitute a very good opportunity.
Among issuers, which sectors currently appear to you to be the most attractive?
We have been very interested in the financial sector for two years. It worked quite well, both in the credit part and in equitybut we still really like it, especially when it comes to bonuses. And beyond the banks? Given our strong overweight in the financial sector, we are naturally underweight in other sectors. But we like for example the telecoswhich currently need less investment and we believe they can do better than the market.
Which sectors should be avoided in debt portfolios right now?
We do not avoid any in particular, but we are cautious in sectors like chemicals for example, retail or the car, because the headwinds are quite strong. However, depending on the valuation, we can invest in companies in these sectors.
Are there opportunities in emerging markets?
We have recently slightly increased our exposure to these markets, particularly sovereigns.
From which countries?
Egypt, Saudi Arabia… Emerging bonds are generally quite cheap and it is in countries like these that we find value.
