With solid corporate balance sheets in Europe and room for further rate cuts in the US, conditions appear favourable for fixed income. But with diverging growth stories, and potential shocks such as the ongoing political situation in France, active bond management has never been more important. Salvatore Bruno and Mauro Valle at Generali Asset Management S.p.A. Società di gestione del risparmio (“Generali AM”) share their views on the macro environment and how this translates into bond portfolios.
- Looking at where real yields exceed potential growth, we see greater medium-term opportunities in Europe compared to the US.
- However, the various fiscal plans of European governments need to be carefully considered. Active bond picking is key.
- The strongest trends in Europe have been the tightening of core-periphery spreads and the steepening of the yield curve.
- This environment is favourable for maximizing portfolio yields and the Euro Bonds strategy is exploiting this with a neutral duration stance and a tactical approach.
After all the volatility of 2025, where do fixed income markets currently stand?
Looking at the difference between real interest rates and real potential growth, spreads in the US seem essentially balanced, whereas in Europe – particularly in Germany, the benchmark for European yield curves – real rates appear high relative to potential growth. Over the past 2-3 years, there has been rapid adjustment in rates following more than a decade of “financial repression” by central banks, which kept yields artificially low. That situation now appears normalized, with fundamental macroeconomic variables once again playing a significant role in determining rate trajectories.
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