The long-awaited moment has arrived when the United States has touched the price of money. The American Federal Reserve (Fed) lowered its interest rates this Wednesday for the first time in more than four years. The only doubt was the size of this reduction (25 or 50 basis points), but there was no going back to reverse the more restrictive monetary policy that the central bank has maintained in recent years, during which it has had to control galloping inflation. The members of the organization have been preparing the markets for months to avoid surprises, which has given free rein to fixed income securities in a scenario where doubts about a possible recession have not been lacking.
Investors have been positioning themselves in debt for months in anticipation of a rate cut. Fixed income is very sensitive to these movements: when the price of money becomes cheaper, bond prices rise. However, in the first part of the year, the dates of these reductions were delayed, causing a decline in fixed income prices that led to losses in portfolios. Once the market has moved with the peace of mind of having September on the calendarBonds have rebounded, bringing their yield to an annual low (it falls when debt is purchased at higher prices).
The turning point came in April. That was the month when the US 10-year bond reached its highest yield of the year, at 4.70%; since then, it has fallen by more than 100 basis points until the details of this last key Fed meeting are known. In the short term too, on two-year securities, it has fallen substantially, in this case by almost 140 basis points after having exceeded the psychological barrier of 5% in April. Over this period, US public debt has accumulated gains of more than 8%, according to the Bloomberg US Treasury index.
Any type of decline, regardless of its magnitude and beyond the initial reaction, is good news for the bond market, which in recent days had been pricing in a price decline that tended more towards half a point. “Ultimately, we believe that Fed’s stance will be positive for bond marketsboth for public debt and for assets linked to spreads“Public debt should be supported by the severity of the short-term rate cut, while spreads have every reason to be below their long-term averages if the economy does not approach a recession,” said Felipe Villarroel, director of TwentyFour AM (Vontobel Boutique).
The pace that the Fed will maintain from now on will remain important. Also relative to other central banks. “From a geographic point of view, we expect that US market outperforms other markets for the rest of the year due to more favorable technical factorsa more accommodative Fed that is less sensitive to external geopolitical risks. In some ways, the election of Donald Trump could benefit the American credit market through more favorable regulation of the financial, energy and industrial sectors, which represent the majority of the universe. high efficiency United States. On the other hand, the permanence of a Democratic candidate would not represent a change compared to the current situation,” believes Akram Gharbi, head of High efficiency from Crédit Mutuel AM. This type of debt, with high profitability, adds profits of 7.4% over the year in the case of issues in dollars.
Behind him to rally accumulated, many investors may wonder if almost everything is already discounted. At abrdn Investments, they have conducted a study in which history shows that in the 12 months following the first rate cut, the profitability of corporate and government bonds has been positive on all occasions. Experts generally expect yields to continue to fall. “For bond investors, we believe that sovereign bond yields are more likely to decline in the coming months. Positioning oneself in debt in this phase of the economic cycle is an interesting option. Similarly, we favor long duration positioning on several sovereign bond markets and prefer to be positioned for steepening (maceration or widening of short-term/long-term spreads) of yield curves, particularly in the United States and the eurozone,” says Michael Krautzberger, Global CIO of Fixed Income at Allianz Global Investors. In the case of U.S. debt, yes, it is necessary monitor the exchange rate risk.
