East Asia Lianfeng: Market expectations fluctuate greatly, interest rates on short-term bonds are attractive and the risk is low

The Zhitong Finance App learned that East Asia Lianfeng Investment released a report saying that after the interest rate meeting in September, the Federal Reserve cut interest rates by 50 basis points as expected, officially kicking off the loose monetary policy. Monetary easing, the easing of inflation, and the expectation that economic growth will remain resilient may boost investors' confidence in facing a number of potential future risks. However, the market has already accumulated quite a bit of increase this year. Coupled with the upcoming US election, heightened geographical tension, and market expectations of interest rate cuts, all of which may increase market fluctuations. Historical data also shows that the stock market generally starts to establish an upward trend six months after the Federal Reserve cuts interest rates. If investors don't want to get involved in stock investment at this stage, they can consider using a short-term bond strategy to lock in high interest rates first, and then make adjustments after the situation is clear.

East Asia Lianfeng said that the supply of short-term bonds is high and liquidity is high. Despite large fluctuations in market conditions, the price of short-term bonds can generally remain relatively stable, and the risk in terms of market value is therefore low. This means that investors do not need to worry too much about price changes and can allocate funds flexibly according to market conditions and individual needs. Short-term investment-grade bonds have high credit ratings, sound fundamentals, and a lower risk of default on a short maturity date than long-term bonds. Although interest rates are trending downward, the market is only in the early stages of interest rate cuts, and the yield is still attractive. Among them, there is no shortage of options for short-term British and American financial bonds with a yield of 5% to 6%.

Over the past 10 years, the average real interest rate in the US has been 0% to 0.5%. Assuming that inflation remains at the level of 2.5% to 2.75%, this means that the federal funds rate should remain within a reasonable range of about 3% to 3.25%, and there should still be room for interest rate cuts of about 200 basis points. At this stage, investors seeking long-term stable returns and willing to take higher risks can pay attention to the opportunities brought by long-term bonds. Long-term bonds have a long maturity period, and there are many variables such as macroeconomics, issuer fundamentals, and interest rate trends. Short-term bonds have higher risk and volatility. However, at the same time, investors are able to lock in the yield attracted over a longer period of time. In addition, interest rates and bond prices have an inverse relationship. When interest rates fall, the price of long-term bonds often increases significantly, providing better potential for capital appreciation during the interest rate reduction cycle.

The fundamentals and technical aspects of Asian bonds are good. Due to the past cycle, inflationary pressure in Asia was relatively moderate, and interest rate hikes were lower than those of developed countries. Although uncertain factors such as the US election may cause market fluctuations, the volatility of the Asian bond market has always been low, so once the bond market recovers, many institutional investors see it as an opportunity to take advantage of low absorption to support the bond market. Among them, there are many Asian investment-grade long-term bonds, with an average yield of more than 5%. Among them, South Korea's financial industry, Indonesian green metal exporters, and Chinese technology, media, and telecom investment-grade bonds are all worth watching.

In summary, short-term bonds, long-term bonds, or stocks ultimately depend on the investor's own risk appetite and investment needs.