Bonds, S’pore equities tipped as investment options amid expectations of US rate cut

SINGAPORE – Expectations that United States interest rates are heading down soon are tipped to affect yields on both short and long-duration bonds – outcomes that will impact investors here.will cut rates by up to 50 basis pointsWhen that happens, the entire yield curve moves lower, meaning rates on short- and long-duration debt securities come down.

With longer-dated yields expected to rise, market watchers said investors should beware of buying long-term bonds – those with durations of 10, 20 to 30 years – but shorter-duration ones remain a viable option.A recently launched DBS three-year fixed income fund comprises a globally diversified portfolio of 50 investment grade corporate bonds and low-risk government bonds. The fund is open to retail investors in US and Singapore dollar versions.

Mr Thomas Drissner, head of Asian credit research at asset manager abrdn, noted that it has become harder to find compelling opportunities in bonds, as credit spreads, which are the premiums investors get paid for accepting default risks, have narrowed.He manages a fund at abrdn that captures yields on short-dated government bonds and seeks to enhance returns by investing across developed and emerging corporate bond markets. The fund has a yield of approximately 6 per cent a year.

“Investment grade bonds have historically not seen defaults exceed 0.5 per cent in any one-year period,” Mr Hou noted, adding that this was also the case during crisis periods such as in 2001, when the tech bubble burst, and in the 2008 global financial crisis.On the other hand, major equity markets have done better than bonds so far in 2024 and the high expectations have been baked into equity prices, Mr Drissner of abrdn said.

He added that the recent sell-off was the market’s way of acknowledging and discounting its expectations that incomes were too high.world’s largest economy is heading into a recession. And while Singapore and Malaysia equities have run up in July, Mr Sani said they remain attractive because both markets have been trading sideways for the past five years and are now playing catch-up.

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