Global Fixed Income Team Views & Outlook

The sharp rise in real yields has created the most attractive bond valuation opportunity since before the Global Financial Crisis, while tight credit spreads call for selectivity.

• The US 10-year yield rose from 4.4% in June to 5.3% by early September, while real yields reached about 3% based on nominal yields and inflation breakevens.
• US inflation is moderating: core PCE stabilized at 3.0% year over year, core CPI fell to 2.4%, and average hourly earnings slowed to 3.0% from 3.8% a year earlier; with productivity above 2%, implied unit labor costs are below 1%.
• US growth remains resilient, with strong August retail sales and capital spending lifting the Atlanta Fed's Q3 GDPNow estimate to 3.7%, helping explain the rise in real rates.
• Credit valuations remain less compelling, with US investment-grade spreads at 82 basis points versus 100 basis points in the eurozone; the team is overweight credit but underweight high yield and agency MBS.
• The team favors long US and global duration, selected securitized credit, banking, communications and healthcare, while preferring AUD, HUF, MXN and COP and remaining underweight the US dollar, GBP and EUR.
• Key risks include renewed conflict involving Iran or Russia and Ukraine, sticky inflation forcing further central-bank hikes, and a material disappointment in the concentrated AI and data-center investment cycle; the team is watching the Anthropic IPO.

Takeaway: Investors should add duration and selected spread exposure while keeping risk below maximum, using any further spread widening or market dislocation to buy and remaining cautious on tight credit valuations and non-US currencies.