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Fidelity International: Taking a defensive approach to investing in US dollar bonds, focusing on financial bonds and protecting bond opportunities.
The spread of investment-grade bonds in the United States has narrowed to its narrowest level in history, insufficient to compensate for additional credit risk. Investors should take a defensive approach when investing in US dollar bonds this year.
Fidelity International's Director of Offshore Distribution in Hong Kong and China, Pan Enmei, stated that as we enter 2025, there are signs of a slowdown in US consumer spending. The Trump administration is expected to raise import tariffs or increase inflation, bringing potential risks to the US bond market. At the same time, the spread between US investment grade bonds has narrowed to historically low levels, not enough to offset additional credit risks. Investors should take a defensive stance when investing in US dollar bonds this year. Consumer spending accounts for nearly 70% of the US GDP, serving as the main engine of economic growth. With consumers having spent their savings accumulated during the pandemic, recent signs of a slowdown in US consumer spending have emerged, and credit card debt has reached new highs. The labor market, closely linked to economic growth, is also facing pressure from rising unemployment rates in recent months. Against the backdrop of weakening consumer spending and hidden concerns in the labor market, there is uncertainty about the pace of US economic growth. If economic growth slows significantly, it may prompt the Federal Reserve to accelerate interest rate cuts, but inflation may not necessarily cooperate. Although the labor market is cooling down and deflation in the service sector is deep-rooted, while housing costs are slowing down, inflation is expected to gradually decrease to 2%. On the other hand, the US may raise import tariffs, which could push up inflation and affect the Fed's interest rate cut decisions. It is worth noting that consumers currently seem less sensitive to interest rate changes, and the market is beginning to question the effectiveness of rate cuts. Furthermore, the US investment grade bond market is currently almost at full valuation, with spreads at their narrowest since 1998, not enough to offset additional risks, especially in the case of economic growth or slowdown. Although the overall yield of investment grade bonds is still relatively attractive, valuations remain disconnected from fundamental factors as spreads are mainly driven by continued buying demand. This means that if buying demand weakens, it could pose a potential risk. If bond supply increases this year through corporate refinancing or M&A activities, it could also change the balance that has been driven by demand so far. In conclusion, with high valuations and potential risks, this year's US dollar bond investment strategy should lean towards defense to reduce the impact of market volatility. Investors should carefully consider the outlook for overvalued US investment grade bonds and bonds in various industries, and pay attention to industries that still offer investment opportunities, such as short-term financial preferred bonds and defensively strong healthcare corporate bonds.
Jiaxin Wealth Management: Optimistic about the outlook for US stocks in 2025, bullish on the performance of the financial and communications sectors.
Hang Seng Investment Management: It is expected that the fundamentals of Asian bonds will remain strong by 2025, but the US stock market is most promising.