Eléonore Bunel arrived at Lazard, where she currently heads the corporate and financial bond department, in April 2018. She joined the firm after working at Axa Investment Managers, where she began her career and where she remained for 16 years, managing several credit investment funds. . Bunel holds a master’s degree in Mathematics applied to economics and finance from the University of Paris XIII. During a visit to Madrid, he answered questions from elEconomista.es.
Are we at a historic moment to position ourselves on the US 10-year rate? Or should you wait to try to buy it at 5%? [la entrevista se realizó a mediados de noviembre, cuando el bono se situaba cerca del 4,4%; hoy está en el 4,26%].
This question takes on even more meaning after Donald Trump’s victory in the American presidential election. His policies will put pressure on inflation, with a likely higher deficit. The long end of the curve Cash could suffer and perhaps reach a higher level in the medium term. In the short term, the movement we have seen over the last six weeks has been very violent, and if disappointing US employment data is released in early December, we could see a slight reversal. In any case, I don’t know if we will reach 5%, but a level close to 4.5% is logical. The 10-year bond will likely suffer, and the 2-year bond could fall if the labor market continues to normalize and the Fed continues to cut rates. The market only expects a drop of 70 basis points by the end of 2025 in the United States. It’s nothing. If the employment data is disappointing, this could result in the 2-year doing very well and the 10-year remaining at current levels, or even increasing. [su rentabilidad] by Trump’s policies. This is why I feel very comfortable with the positioning of our portfolio to benefit from the steepening of the American curve between 2 and 10 years.
But is it time to get started with the “T-Note”?
This involves adopting a short-term tactical positioning for the end of the year, due to the possible rebound that could occur. But from a medium term perspective, I would not buy today Treasures of the United States.
Between European and American bonds, which do you prefer?
At that time, we preferred to be Europeans for a long time. Growth in Europe is under pressure, unlike in the United States. If the tendency to disinflation continues, the ECB will continue to reduce its interest rates next year; and if this trend disinflationary is accentuated, the Central Bank could even do more. Growth is clearly under pressure in Germany, perhaps in France… For all these reasons we prefer to be long on European bonds, while in the United States, what we will implement is this strategy positioning on the curve. But in the pack you can be long – a key entry level in the pack is 2.5% -, and in the Italian bond. Perhaps I would be more cautious with the French bond, which could be more volatile next year.
“In the ‘high yield’ universe, the duration fell from 5 years to just three years, with the same differential”
Do you see a debt crisis in France?
We are not there yet. I think the government will take steps to try to reduce the deficit, but it will not be quick. It will take months. Italy is a good example of a difficult situation that was successfully overcome. It will take time, but I don’t expect any debt crisis.
High yield bonds are doing very well this year. Are they still attractive compared to Investment Grade, despite the price increases they have already experienced?
Investment grade might be a good option today because the total return of a universe bond index investment grade It comes mainly (two thirds) from the interest rate component and another third from the credit spread. We do not expect spreads to widen unless a recession occurs. But our base case is a soft landing, which is very positive for both credit and high yield. If next year we expect rate cuts in Europe, with the investment category you will benefit from the coupon, plus the price increase derived from these cuts. In the case of high yieldtwo thirds of the total return comes from the spread and another third from rates, but the coupon is higher than in investment grade. If you are waiting for rate cuts and you propagated Continue as before, you will earn 5% or 6% with the coupon. And the second point is that the universe of high yield has changed. Four years ago, the average maturity of these bonds was around 5 years. Now he is at three or three and a half, with the same differential. Furthermore, the fundamentals remain good and the leverage is very low. However, high performance remains attractive. We have seen very significant inflows of money. This is normal, the yields are so attractive that people want to have fixed income securities in their portfolios, whether investment grade or high yield.
Which sectors interest you the most at the moment?
We are very comfortable with the fundamentals of the financial sector, and in particular with European banks. In this sector, we position ourselves through subordinated debt, which allows us to obtain higher returns on investment grade issuers. As for corporate debt, we like telecoms, the health sector… Little by little, we are returning to the chemical sector, and we remain underweight on automobiles, we have been for several quarters. Now is not the time to revisit that, because we are going to be pressured by Trump’s tariffs.
“We like the bonds of banks, ‘telecos’ and companies in the health sector”
To conservative investors who have seen in 2022 (with bond prices collapsing) that fixed income is also losing money, what would you say? 2024 seemed to be going well, but after a terrible October, investors are losing money again this year on global debt. What can you expect?
The fixed income market has suffered from significant volatility due to interest rates. It’s normal, we are in a new era. There have been many uncertainties: on the election of Trump, on the data from the United States… But the situation is not that of 2022. Currently, the investment grade offers 3.5%, and the high yield, As I mentioned, between 5.5% and 6%. To these investors, I would say that they must be in this asset class. It’s true that October was difficult, but it’s still a good start. When these types of movements occur, you must take advantage of them to strengthen your positioning.
