Dongxing Securities Co., Ltd.: Market expectations are highly volatile, short-term bond yields are attractive and low risk

According to the financial news app Zhitong Finance, Dongya Lianfeng Investment released a report stating that after the September Federal Reserve meeting, as expected, the interest rate was cut by 50 basis points, officially kicking off a loose monetary policy. With expectations of loose monetary policy, easing inflation, and resilient economic growth, investors' confidence in facing potential future risks may be boosted. However, the market has already accumulated significant gains this year, coupled with the upcoming U.S. presidential election, escalating geopolitical tensions, and market expectations for the extent of interest rate cuts, which may increase market volatility. Historical data also shows that the stock market generally begins to establish an upward trend about 6 months after a Fed rate cut. If investors are not currently interested in stock investments, they may consider a short-term bond strategy to lock in high yields first and make adjustments when the situation becomes clearer.

Dongya Lianfeng stated that short-term bonds have abundant supply and high liquidity. Despite significant market fluctuations, short-term bond prices generally tend to remain relatively stable. Valuation-based risks are also lower, meaning investors do not need to overly worry about price changes and can flexibly allocate funds according to market conditions and personal needs. Short-term investment-grade bonds have high credit ratings, sound fundamentals, and short maturity dates, which reduce default risks compared to long-term bonds. Although interest rates are trending downwards, the market is still in the early stages of rate cuts, and current yields remain attractive. Short-term financial bonds in China, the UK, and the U.S. offer choices with yields ranging from 5% to 6%.

Over the past 10 years, the average real interest rate in the U.S. has been between 0% and 0.5%. Assuming inflation remains at 2.5% to 2.75%, the reasonable range for the federal funds rate should be around 3% to 3.25%, leaving a potential rate cut space of about 200 basis points. For investors seeking long-term stable returns and willing to take on higher risks, opportunities from long-term bonds should be considered. Long-term bonds have longer maturity dates, with more variables such as macroeconomic conditions, issuer fundamentals, and interest rate trends, leading to higher risks and volatility compared to short-term bonds. However, investors can lock in attractive long-term yields, and as interest rates fall, long-term bond prices often experience significant increases, providing better capital appreciation potential during rate-cut cycles.

Asian bond fundamentals and technical aspects are positive. Due to past cycles, Asia has experienced relatively mild inflation pressures, with lower interest rate hikes compared to developed countries. Although uncertain factors such as the U.S. presidential election may cause market volatility, Asian bond markets traditionally have lower volatility. Therefore, when the bond market experiences a pullback, many institutional investors see it as an opportunity to buy at lower prices, supporting the bond market. In Asia, there are many choices for long-term investment-grade bonds, with average yields exceeding 5%. Sectors such as the South Korean financial industry, Indonesian green metal exporters, and Chinese technology, media, and telecommunications investment-grade bonds are worth paying attention to.

In summary, whether it's short-term bonds, long-term bonds, or stocks, the ultimate choice depends on investors' risk appetite and investment needs