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Friday 12 January 2024
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January 2024 | Strong fourth-quarter returns reduced US high yield spreads from 403 basis points over Treasuries at the end of the third quarter to 339 basis points at yearend. Generating positive performance with spreads at these levels is much more challenging than at the long-term average spread of 537 basis points since yearend 1996. Of course, positive performance can also potentially be generated from falling Treasury bond yields. The case for falling Treasury yields currently is built on the depth and cadence of Fed rate cuts, which we believe will be a function of decreasing service sector inflation and how much the US economy slows. Additionally, we continue to be concerned about defaults.
01 | Fourth-quarter high yield index performance was strongly positive, with a major rally in November and December offsetting October’s weak performance.
02 | Inflation data continued to drive the markets: In contrast to earlier in 2023, declining rather than increasing inflation swung the markets to gains.
03 | It now appears the Fed’s “higher for longer” stance was about keeping bond yields high to slow the economy instead of a true commitment.
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Unless otherwise stated, all information contained in this document is from Amundi Asset Management as of December 31, 2024 . Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the [author] and not necessarily Amundi Asset Management and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product or service. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not indicative of future results. Amundi US is the US business of Amundi Asset Management.
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The reinsurance industry has existed for over 150 years, and it remains an asset class structurally uncorrelated to traditional investments. To derive the value of cat bonds, Amundi believes the asset class should be part of a strategic, long-term asset allocation. The favorable risk and return characteristics have been demonstrated in the current market environment as well as over the longer term, and there are many favorable market trends that continue to make us constructive on this asset class over the foreseeable future.
Global stocks fell sharply at the start of the week, with Japan’s benchmark Topix index on Aug. 5 suffering its biggest one-day drop in more than three decades. European shares and U.S. stock futures also declined. Meanwhile Emerging Markets stock indices, mostly in Asia (Taiwan and South Korea), fell into the red and currencies that had benefited from high carry trades funded by the yen, such as those in Latin America, lost ground.
Market reaction to Biden's announcement has been muted at the time of writing, with a fall in the US dollar in early trading on Monday (July 22nd), a marginal movement in 10-year US Treasuries, and an upward trend in equity futures. In terms of the implications on markets, the election outcome is still highly uncertain. It is too early to define a potential "Harris trade," but even to have a specific trading strategy for a potential Trump 2.0 administration, as there is ideological uncertainty regarding its goals and policies. There are also significant ideological clashes that the Trump administration would need to address, such as the approach towards China, inflation, tariffs, fiscal expansion and the desire for a weaker dollar.
Before investing, consider the product's investment objectives, risks, charges and expenses. Contact your financial professional or Amundi US for a prospectus or summary prospectus containing this information. Read it carefully. To obtain a free prospectus or summary prospectus and for information on any Pioneer fund, please download it from our literature section.
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