2024, another favourable year for Absolute Return bond management
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Every month, LBP AM deciphers market news in video. In April, Henriette Le Mintier, Bruno Watteyne and Guillaume Fradin, Absolute Return manager-analysts at LBP AM, present the opportunities offered by Absolute Return bond management in 2024.
Why take an interest in Absolute Return bond management? Because in an economic, political and geopolitical context that remains highly uncertain, Absolute Return is, in our opinion, the right investment strategy as it aims to achieve a positive, steady returns whatever the economic cycle, whatever the market conditions, thanks to its flexible and opportunistic approach. So, the question is: what are the expectations for Absolute Return bond management to face the challenging 2024 environment?
What are the prospects for Absolute Return in 2024?
There are two reasons for which we think Absolute Return bond management is particularly well suited to the uncertainties of 2024. First, a slower-than-expected monetary policy pivot; and second, a rebound in volatility and opportunities.
On the slower-than-expected monetary pivot: in the US, persistent first-quarter inflation and robust economic activity have invalidated the need to cut rates. And the ECB, barring any major surprises, is likely to start cutting rates in June, but will remain cautious thereafter as inflation in services is likely to remain relatively high.
Secondly, the rest of 2024 will not be a smooth ride for bond markets, as there are plenty of uncertainties over inflation and growth trajectories. Bond market volatility, after having fallen from its 2023 record highs, has indeed recently bounced up again. So for example, the sharp squeeze on credit spreads is a source of fragility. And dispersion in this market could lead to unpleasant surprises, especially if rate cuts were to be pushed back in time.
As a result, all this creates investment opportunities in the fixed-income and credit markets, which we are of course looking to benefit from.
Flexibility and adaptability
Questions surrounding the monetary stimulus, and pressure on interest rates, have demonstrated in 2024 that Absolute Return bond management is the right approach. And we believe it will remain so for the rest of the year, thanks to its two key advantages: flexibility and adaptability.
Flexibility because we can modulate modified duration and credit exposure, in both positive and negative territory, enabling us to quickly to adapt to market shifts. And adaptability, thanks to the wide spectrum of the bond universe, and the various performance drivers available.
These two key advantages of Absolute Return management - flexibility and adaptability - enable us to perform regardless market conditions, in the fixed-income and credit markets.