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Bond trends in a new policy era
Even though a second Trump administration has settled in, US policy implementation remains uncertain. Indeed, actual policy action often differs from campaign rhetoric.
In the meantime, the Federal Reserve continues to curate a soft-landing scenario with an eye towards the evolution of fiscal policy. With inflation generally benign, the path to further rate cuts will likely depend on global fiscal and economic developments. Further weakness could trigger the US central bank to adjust rates lower1, as illustrated below.
Central bank policy rates
The Reserve Bank of Australia (RBA) has left its cash rate target unchanged at its November 2024 meeting. Meanwhile, the labour market remains tight in Australia, with the December unemployment rate at 4.0%, well below the RBA’s 2024 year-end estimate of 4.3%. The participation rate has also reached a record high of 67.1%, while the underemployment rate has further declined to 6.0%, evidencing reduced slack in the labour market2.
Coupled with the disinflation trend remaining broadly on track, the Australian economy seems to be navigating in RBA Governor Michele Bullock’s ‘narrow path’ to a soft landing, relieving the immediate need for a rate cut in February2.
Nevertheless, we still see value in staying invested in fixed income. Bonds are regaining their place in portfolios as both an attractive source of income opportunities and portfolio diversifier3.
It’s still constructive for many bond sectors
4. Source: Bloomberg L.P., FactSet, ICE BofA, J.P. Morgan Asset Management. Euro IG: Bloomberg Barclays Euro-Aggregate – Corporate; Global IG: Bloomberg Barclays Global Aggregate – Corporate; Aus IG: Bloomberg AusBond Credit (0+Y); U.S. IG: Bloomberg Barclays U.S. Aggregate Corporate. Euro HY: ICE BofA Euro Developed Markets Non-Financial High Yield Constrained Index; Global HY: ICE BofA Global High Yield; U.S. HY: ICE BofA U.S. High Yield Constrained Index; USD EM Corp: CEMBI Broad Diversified; Local EMD: GBI-EM Global Diversified; USD EMD: EMBI Global; USD Asia Credit: JPM Asia Credit; Local Asia EMD: JPM JADE; USD Asia HY: JPM Asia HY. Positive yield does not imply positive return. Past performance is not a reliable indicator of current and future results. Max yield on USD Asia HY is 19.1%. Data as of 07.02.2025.
As illustrated above, yields across many bond sectors continue to hover near the decade-high ranges. Moreover, higher starting yields may correlate with higher forward returns4 and this could present an attractive opportunity to lock in elevated yields.
For specific sectors, we are constructive on securitised5 credit, including US mortgage-backed securities and we continue to find opportunities in high-yield6 and investment-grade corporate credit. This broadly reflects stronger fundamentals amid a healthier outlook for revenues and earnings.
Still, actively managing duration7 and credit risks8 remain crucial.
Our fixed income solutions across the risk spectrum
Key takeaways
No benchmarks, no bias, no borders
For some bond strategies, we employ a flexible, global fixed income investment approach that can help investors, depending on their investment objectives and risk appetite, capture income opportunities as bond markets recover, while managing uncertainties such as the path of interest rates and inflation.
Without a benchmark as a starting point and free from bias to any region or sector, such an approach allows investors to explore all avenues to seek total return, income and volatility management, with investment managers dynamically adjusting asset allocation and duration7 as market conditions evolve.
At J.P. Morgan Asset Management, our cross-sector expertise and deep research resources enable us to invest across the global bond universe, building dynamic fixed income portfolios for a range of risk appetites and goals. Our disciplined investment process combines top-down and bottom-up analysis, with a common research framework to integrate ideas.
Your partner for fixed income
J.P. Morgan Asset Management presents fixed income solutions that spans the risk spectrum, underpinned by the deep resources and rigorous research of a truly global platform9.
9. Source: J.P. Morgan Asset Management, data as of 30.09.2024. Includes portfolio managers, research analysts, traders and investment specialists with VP title and above.
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