Bond market outlook
Corporate bonds and Emerging Market bonds still preferred
Expectations for key interest rates and bond yields have recently shifted slightly upwards from very low levels, which has slightly improved the future earnings outlook. The bond market currently values the yields of ten-year German government bonds at around 2.4 percent – just above the expected key interest rate low of 2.0 percent for 2025. This remains plausible as long as the outlook for inflation and the economy is subdued.
In an environment of weak but positive economic growth (a recession is not expected for 2025) and simultaneously falling interest rates, spread products should continue to outperform. This has proven to be a very successful strategy so far this year.
Therefore, we continue to favour an overweight in corporate bonds in the euro investment-grade segment, Italian and French government bonds within euro government bonds, and Emerging Market bonds in hard currency (US dollars) over US government bonds.
Find here more information on current market developments!
As of November 2024
Bond markets in detail
Rosy prospects for corporate bonds
Bonds undoubtedly had an extremely difficult year in 2022, so many investors had even higher hopes for a positive trend in 2023. And, as it happens, bond investments have indeed gained in value since the start of the year. But what do the next twelve months have in store?
Positive long-term outlook for Emerging Market bonds
In the wake of the rise in US bond yields, Emerging Market bonds have also come under increased pressure since the summer. They had delivered quite attractive performance up until then and offer solid risk-return profiles at the current levels, provided they are selected carefully.
A good time to enter the high yield bond market?
High yield bonds (i.e. bonds from issuers with lower ratings, thus making them riskier) have been a sought-after investment instrument for a long time. And they appear to offer very attractive returns at the moment as well. Is it the right time for an investment in high yield bonds?
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Bond funds
Bond management is one of Raiffeisen Capital Management's longest established core competencies.
Invest sustainably in euro bonds with Raiffeisen-ESG-Euro-Rent
Since mid-November one of our oldest bond funds, Raiffeisen-Euro-Rent, has started investing sustainably on the basis of ESG (environmental, social, governance) criteria, with a stronger focus on key Zukunfts-Themen. As part of this transition, the fund name has also changed, and it is now known as Raiffeisen-ESG-Euro-Rent.
ESG-transformation of the Emerging Market bond markets
The Emerging Markets present a number of major challenges for investors when it comes to sustainability and ESG-criteria. However, understanding and overcoming these challenges also opens up significant opportunities, both in terms of earnings and promoting a transition to sustainable business practices in the Emerging Markets.
Basics
How to explain bonds?
Learn more about bonds in our short educational video!
Investing in corporate bonds
Corporate bonds, in particular ones with (very) good ratings, have always been a popular form of investment. The expected return on the bond depends on the creditworthiness of the issuer, because the weaker the creditworthiness, the higher the yield on the corporate bond. Credit ratings by rating agencies help to measure a company’s creditworthiness, and thus also estimate the risk associated with a bond. For example, a rating of AAA denotes the best creditworthiness.
What makes high yield bonds so special?
High yield bonds are bonds issued by companies with lower credit ratings (BB and lower). These bonds normally offer much higher returns than instruments from issuers with strong ratings. This is exactly what makes them so popular for investments – even though the yield advantage is also accompanied by higher risks.
Why Emerging Market bonds?
Emerging Market bonds are bonds issued by companies from the Emerging Markets. These bonds are issued either in the local currency of the country in question or in EUR or USD. These “hard currency bonds” offer yield advantages compared to government bonds issued by euro area core countries or the USA. Local currency bonds feature additional potential as a result of possible currency appreciation (which can also be a disadvantage in the event that the local currency weakens).
Returns – in a nutshell
The return is the amount earned on an investment, expressed in percent, for a full year and pertains to the capital invested. The return is an important measure for the performance and comparison of capital investments. It can refer to the interest income on a savings account, the current yield on interest-bearing securities, or the dividend payments on equities. The return on an investment expected in the future can deviate from the return that is actually generated.
What is duration?
Duration refers to the average capital commitment period of a bond. It denotes the average period of time it takes for the investor to recover the invested capital. The longer the remaining term of the bond, the longer the duration is. However, the duration is generally shorter than the remaining term, as the coupon payments which fall due on the capital during the term reduce the amortisation period. The higher, earlier and more frequent the coupon payments, the more the duration decreases.
What is modified duration?
Modified duration expresses the percentage change in the value of a bond when the market yield changes. It shows the percentage increase in the bond price if the market yield falls by 1% or the percentage decrease in the price if the market yield rises by 1%. The higher the modified duration, the larger the price loss in the case of rising interest rates and the price increase in the case of falling interest rates.
The Fund Regulations of Raiffeisen-Inflationsschutz-Anleihen, Raiffeisen-Nachhaltigkeit-Dollar-ShortTerm-Rent, and Raiffeisen-Osteuropa-Rent have been approved by the FMA. The Raiffeisen-Inflationsschutz-Anleihen may invest more than 35% of the fund's volume in securities/money market instruments of the following issuers: France, Netherlands, Austria, Belgium, Finland, Germany. The Raiffeisen-Nachhaltigkeit-Dollar-ShortTerm-Rent may invest more than 35% of the fund's volume in securities/money market instruments of the following issuers: United States. The Raiffeisen-Osteuropa-Rent may invest more than 35% of the fund's volume in securities/money market instruments of the following issuers: Poland, Türkiye, Hungary.
The following assessments of capital market prospects are a snapshot and may change at any time without notice or update. They represent a basic orientation framework and do not represent a generally binding view for fund and portfolio management. They also represent neither a binding forecast nor a recommendation for action for investors. The assessments of individual teams or fund managers may deviate significantly from this under certain circumstances. Similarly, the positioning of the investment funds, asset management products and portfolios may differ significantly from the market outlook mentioned on this page, for example due to different investment horizons, strategies and models used or discretionary decisions made by individual fund managers.
As of April 2024