Development of the US dollar and US bonds
Accurate exchange rate forecasts are notoriously difficult, especially for relatively short periods (i.e. 12 to 24 months), due to a variety of influences. Fundamentally, the growth differential between the US and the EU and the positive interest rate differential between the US dollar and the euro continue to support the US dollar, both in terms of nominal interest rates and real interest rates.
Little change in interest rate differentials for the time being
Based on the most likely interest rate cut scenarios of the European Central Bank (ECB) and the US Federal Reserve, there will be little change in interest rate differentials over the next six to twelve months. In nominal terms, the yield level in the USA will probably remain above that of the eurozone for the foreseeable future. This is also likely to be necessary in order to attract enough capital to cover the US government's immense capital requirements. At the same time, the US trade balance remains clearly negative and requires capital inflows from abroad. However, the high budget deficit in the USA is not yet an issue for the market. This will almost inevitably change one day, but probably not in the next few years - unless the budget deficits widen significantly again.
Interest rate cuts by the Fed priced out
In recent weeks and months, the US bond markets have priced out previously priced-in interest rate cuts by the US Federal Reserve (Fed). They are now anticipating only around 0.40% (40 basis points) for 2025. With Trump's election victory and Republican majorities in both chambers of parliament, the markets are currently obviously recognising the risk of continued high budget deficits and possible new inflationary potential, for example as a result of massive tariff increases. Should Trump actually deport illegal immigrants on a large scale (although whether he can actually do this is questionable), this could tend to lead to higher wages. Even if we can only speculate about the specific policies of a new Trump administration so far, it has undoubtedly become much more difficult for the Fed to lower interest rates. The monetary authorities will at least want to wait until there is greater clarity in this regard and they can better assess any risks.
Currently attractive yields on US bonds
The yield curve, which was still inverted a few months ago (higher yields for short bond maturities than for long bond maturities), has now normalised, i.e. long-dated US government bonds now offer higher yields than short-dated bonds again. What was unexpected, however, was that this normalisation was not due to the fact that yields on short maturities fell significantly, but rather that they rose quite sharply for medium and long maturities. The flip side of this is that short-dated US bonds also continue to offer attractive interest rates at present. Added to this is the potential for further interest rate cuts by the Fed, which has diminished (for the time being) but has not been completely eliminated. If the market prices in more interest rate cuts again over the course of the year, this would open up price potential for short-dated bonds.
US dollar remains strong
The US dollar remains strong in the wake of continued robust economic growth and attractive US bond yields. Donald Trump's election gave it a further boost. Although the further upside potential appears limited (parity with the euro could still be reached), there is currently little to suggest that the strength of the US dollar will come to a rapid end. In the medium to long term, however, the US dollar could weaken. Trump switched to a weaker dollar in the course of his first term and this could happen again this time, especially if the strength of the dollar weighs on the US economy. Fundamentally, the US dollar is already very expensive, which means it could fall significantly in the long term. However, it seems premature to take a position now.
What does this mean for our short-dated US dollar bond fund?
The outlook for returns on the Raiffeisen-Nachhaltigkeit-Dollar-ShortTerm-Rent is positive over the next 12 to 18 months – albeit with the caveat that major movements in the US dollar could both significantly increase and cancel this out. The current portfolio yield is around 4.6 %. However, it is only an indication of the current interest income and is not synonymous with the actual return. This may be higher or lower.
Overall, it is therefore no longer an ideal entry point for euro-based investors (especially in view of the dollar exchange rate). However, it still appears to be a sufficiently good time with additional earnings potential if interest rates are cut more than is currently expected. Of course, there is no guarantee that an investment in the fund will develop positively within the planned investment horizon.
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For whom can our dollar bond fund be interesting?
The Raiffeisen-Nachhaltigkeit-Dollar-ShortTerm-Rent is primarily aimed at investors, who
want to invest in bonds, issued in dollar currencies (almost exclusively in US dollar),
favour short-dated bonds and a broad diversification across various issuers of high credit worthiness, and
are looking for an investment in which the bond issuers are selected by applying strict sustainability criteria.
Fund profile
The fund Raiffeisen-Nachhaltigkeit-Dollar-ShortTerm-Rent invests in primarily short-dated bonds in dollar currencies (US dollars, Canadian dollars, Australian dollars, and New Zealand dollars).
The ESG metrics calculated by Raiffeisen KAG and negative criteria are applied. Government issuers that are excluded due to the sustainability criteria can be replaced with issuers such as highly rated supranational organisations (e.g. international development banks), European government financing agencies, and certain public sector entities (e.g. individual Canadian provinces).
Issuers that are not located in the USA, Canada, Australia, or New Zealand also issue bonds in dollar currencies, including the Kreditanstalt für Wiederaufbau and the European Investment Bank. The same can be said for many internationally active companies.
When it comes to the selection of the bonds and issuers, Raiffeisen-Nachhaltigkeit-Dollar-ShortTerm-Rent follows the same proven sustainability investment process of Raiffeisen KAG, which is also used in other Raiffeisen sustainable funds. The bond portfolio constructed in this way will continue to be actively managed by the investment specialists at Raiffeisen KAG with regard to the currencies, duration, and yield curves as well as with regard to the ratings and spreads of the corporate bonds in the fund portfolio.
The Fund Regulations of the Raiffeisen Sustainable Dollar ShortTerm Bonds have been approved by the FMA. The Raiffeisen Sustainable Dollar ShortTerm Bonds may invest more than 35 % of the fund's volume in securities/money market instruments of the following issuers: United States.