Commentary
Equities had a weak performance last week, with slight declines in most major markets. In the US, only small-caps delivered gains, with value category outperforming growth. Meanwhile, European equities declined in the face of upcoming elections in France and the UK. Chinese equities also closed the week with losses, as concerns over slowing economy depressed investor risk appetite.
DM treasury yields have increased considerably since the start of the year. As inflation in the US proved stickier than anticipated, markets are now expecting only one or two 25bps Fed rate cuts in 2024 (compared to five or six cuts expected at the start of the year). As similar dynamic is observed in Europe, yields look increasingly more attractive in Western fixed income markets. However, because shorter-term yields stand above longer-term ones, investors may be tempted to concentrate holdings in cash investments, thus, foregoing the opportunity to lock in attractive yields in mid and long-term fixed income securities. In contrast, an effective investment strategy would diversify holdings across both maturity and quality (while mid-term US treasuries offer appealing yields, high-quality corporate bonds from developed economies are also priced well). Failing to do so introduces greater reinvestment risk for investors (after short-term bonds mature, the high interest rate environment may no longer be present). As a general concept, investors benefit from putting long-term money in long-term assets (i.e., matching investment horizon with maturity of investment securities).
