The Case for Rebalancing into Bonds, in Pictures
In the current market environment, we see a compelling case for rebalancing into bonds vs. both stock and cash.
Third Quarter 2024 Market Outlook
While we see a more “moderate” economic path ahead, political upheaval and re-emerging deficit concerns will likely prolong the range-bound conditions for long-term interest rates. Yield stability may feel like a pedestrian outlook concept, but it remains one of the key components behind the strategic, asset-allocation case for bonds. Explore our Q3 Outlook for a bond market overview, an assessment of the global macroeconomic landscape, a spotlight on biofuels, and sector outlooks in which our portfolio managers highlight the risks and opportunities within their respective asset classes.
Key Convictions & Investment Themes
Learn more about the four key themes that shape our quarterly fixed income outlook:
Of Political Upheaval and Rising Deficits
This year’s global political developments not only add to future geopolitical uncertainty, but they also threaten to increase the fiscal risks already prevalent in the post-COVID environment. And elevated interest rates only aggravate the fiscal arithmetic. As a result, sovereigns yield curves for countries with high debt burdens and large deficits—such as the U.S., Japan, Italy, and France—may be intermittently subject to upward pressure on long rates.
The Mode of Moderation
One aspect of the global economy’s emergence from the post-COVID boil is the return of some “traditional” market constructs—inflation that is approaching targets, interest rates that are sitting near more historically normal levels, and newfound room for central banks to ease policy. The forces behind these constructs
Yield Stability and the Case for Bonds
Our ongoing expectation for range bound rates may feel pedestrian, but it’s a key component of the strategic, asset-allocation case for bonds. Indeed, the relative-value shift over the last few years—i.e., the cheapening of bonds vs. stocks—has typically positioned bonds for compelling risk-adjusted returns. Furthermore, if stocks experience a sharp correction while the Fed is on hold or cutting rates, bonds historically act as solid portfolio shock absorbers.
A High-Quality, Opportunistic Emphasis
At this stage in the credit cycle, more frequent event risks, consumers’ increasing focus on essentials, and moderating credit metrics (along with increased distressed exchanges), point our allocations towards high-quality securities. That said, we’re seeking to add risk in situations where dislocations may mean revert and/or where sector dispersion reveals relative-value opportunities.
Additional Insights
The Business of Bonds with PGIM Fixed Income’s Co-CIO
Listen for our scenario-based approach, investment views, the fixed income opportunity set we see ahead, and what it means for us as we construct portfolios.
The Next Chapter for Emerging Market Debt
Following several years of underperformance, learn why we believe emerging markets debt is now poised to outperform other fixed income asset classes.
A Look Under the Hood of China's EV Sector
The third post in our Great Power Competition (GPC) series takes a closer look at factors that make China’s electric vehicle (EV) sector one of the more formidable global players.
Not All AAA CLO ETFs are Created Equal
Actively managed AAA CLO ETFs provide access to the highest-rated CLO tranche but not all AAA CLOs are created equally, and actively managed ETFs are showing notable dispersion in positioning.
