Julien Houdain, Head of Global Unconstrained Fixed Income at Schroders, highlighted recent market turbulence and the potential investment opportunities arising from attractive asset valuations. Despite ongoing macroeconomic uncertainties, Schroders has raised the probability of a U.S. economic "hard landing" to 35%, but still considers a "soft landing" more likely at 55%.
Schroders remains optimistic about U.S. 5-year Treasuries (SMCI, Financial) but adopts a cautious stance toward medium to long-term U.S. bonds due to inherent risks. The market remains highly volatile, with rapid shifts in direction. Current economic policies are likened to a tax on consumers and businesses, equivalent to 0.6% of GDP, aligning with low growth or stagnation but not a deep recession. While tariffs increase costs, falling international oil prices offer some relief.
The macro environment appears unfavorable, yet Schroders focuses on its impact on market valuations. Recent market volatility and indiscriminate sell-offs in investment-grade and high-yield bond markets have created attractive entry points, though careful selection remains essential.
U.S. 10-year Treasury yields have risen significantly since late March, indicating price declines. Schroders remains positive on U.S. 5-year Treasuries but cautious on longer-term bonds due to potential risks. In the Eurozone, Schroders maintains a negative outlook on bonds, citing high valuations and significant fiscal policy shifts in core countries like Germany, which could pressure the bond market.
