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.

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.