US Government Bonds
US government bonds remain Neutral, with the opportunity concentrated in the middle of the curve. Persistent inflation, resilient growth and heavy government borrowing weaken the case for long duration. Intermediate maturities offer more attractive carry with less sensitivity to term-premium and supply risk.
What this means for investors: We favour selective exposure to intermediate US government bonds and avoid treating long-duration bonds as a high-conviction capital-gain opportunity.
US Investment-Grade and High-Yield Credit
US investment-grade credit remains Underweight. Option-adjusted spreads were approximately 83 basis points in early October, providing limited downside protection, while much of the headline yield reflects duration rather than credit compensation. We prefer short-dated and floating-rate securities.
US high-yield credit also remains Underweight despite positive momentum. Spreads of approximately 310 basis points in early October remain tight, while higher leverage and weaker interest coverage leave little cushion against deteriorating fundamentals.
What this means for investors: Credit selection should emphasise quality, short maturity and carry. We would require materially wider spreads before adding broad credit risk.
International Government Bonds
International government bonds remain our clearest Underweight. Core European and Japanese government-bond yields generally offer less income than comparable US Treasury exposure, while policy normalisation and fragile growth leave long duration vulnerable to repricing.
What this means for investors: International duration currently offers insufficient yield and limited protection against policy and fiscal risk.
Emerging-Market Debt
Emerging-market debt has moved from Underweight to Neutral as energy-price pressures have eased from their earlier peaks and emerging-market currencies have stabilised. Local-currency bonds offer attractive real income but depend on currency stability, while tight hard-currency spreads provide limited protection against a growth or US-dollar shock.
What this means for investors: Income is attractive, but allocation decisions should distinguish carefully between local- and hard-currency debt rather than treating emerging-market bonds as a single trade.
