Select your local Natixis site for products and services by region

Americas
Latin America
United States
United States Offshore
Asia Pacific
Australia
Hong Kong
Japan
Singapore
Europe
Austria
France
Germany
Italy
Spain
United Kingdom
Location not listed?
International
Investments
From broad money market exposure to niche private assets our investment managers offer expertise across the investment spectrum.
Fixed income

Four areas for fixed income investors to watch heading into year end

September 24, 2024 - 3 min read

There seems to be little debate that we are likely heading into a rate cutting cycle. How do you see things playing out from here?

The increase in global interest rates, which began in the first quarter in 2024, continued through the first half of the quarter before stabilizing in Europe and partially reversing in the US during May and June.  As expected, the ECB pivoted by reducing its key interest rate by 25 basis points1. and it is anticipated that further cuts will follow. In September, the Fed initiated its first rate cut, in line with market expectations. Based on current information, we now expect additional cuts from both central banks over the coming months, with the possibility of further reductions by next summer.

How positive are you about the prospects for investors going into the end of this year?

We can’t see any specific risks directly linked to the macro-economic situation, but there are four areas that we are watching closely because, we believe, they could pose a greater threat in the medium to long term.

The first of these is inflation. We do not think that inflation is a risk in the short term any longer, but because of factors such as the energy transition, growing resource scarcity, war, and populism, among others, the risks of higher and more unstable inflation than markets have grown accustomed to remains a possibility over the medium to long term.

The second is volatility. Since the beginning of June, political events have generated the most volatility in financial markets. Budget revisions have often revealed larger deficits than previously anticipated, and election results create high levels of anxiety. As such we expect to see an increase in volatility against a backdrop of political uncertainty – especially as we head closer to the US election in November.

The third factor we are keeping an eye on is closely related to the other two and that is the possibility that central banks may be more hesitant to make monetary policy decisions and thus markets will be less able to predict them. If there is one thing we know, markets hate uncertainty. Therefore, this in turn could feed into more volatility within markets.

The final factor on our list relates to debt. It is a topic we have spoken about at length and it remains a concern and not just to us. As you can see from the chart below, a number of significant markets now boast a fiscal deficit greater than 3% of GDP2.

The IMF is concerned about large deficits

interest rate yield graph
Sources: IMF, fiscal deficit as a % of GDP, US treasury & Citi research as of 05/31/2024. Data may change over time.

And recently the IMF warned that deficits have stoked inflation and pose ’significant risks’ to the global economy3. Given this, such countries will have to walk a tightrope, especially given high foreign ownership of their public debt and any missteps could soon be punished severely by so-called ‘bond vigilantes’.

Fiscal dominance is also likely to mean higher rates over the long term, as investors come to terms with a new paradigm of stronger fiscal driven growth, economic uncertainty, and higher ’neutral rates’.

So, how should investors be approaching this market?

The key thing, in our experience that investors should be focused on in an environment like the one we are currently in is flexibility. While it looks likely that we are now entering a rate cutting cycle exactly how far or how fast it will go means investors need to be able to take advantage of both rising and falling rates. Similarly it is always important to remember that starting points matter. If they are too expensive, even great ideas can turn out to be bad investments. 

1 Source: European Central Bank, June 2024, https://www.ecb.europa.eu/press/pr/date/2024/html/ecb.mp240606~2148ecdb3c.en.html.

2 Source: IMF, US treasury & Citi research as of 05/31/2024. Data may change over time.

3 Source: IMF, https://www.imf.org/en/News/Articles/2024/04/17/tr041724-transcript-of-fiscal-monitor-april-2024-press-briefing

 

This communication has been provided for information purposes only to investment service providers or other Professional Clients, Qualified or Institutional Investors, and licensed financial service providers . This communication must not be used with Retail Investors. It is the responsibility of each investment service provider to ensure that the offering or sale of fund shares or third party investment services to its clients complies with the relevant national law.

 

Natixis Investment Managers is the holding company of a diverse line-up of specialised investment management and distribution entities worldwide. The investment management subsidiaries of Natixis Investment Managers conduct any regulated activities only in and from the jurisdictions in which they are licensed or authorized. Their services and the products they manage are not available to all investors in all jurisdictions.

 

Natixis Investment Managers includes all of the investment management and distribution entities affiliated with Natixis Distribution, L.L.C , and Natixis Investment Managers International. For a comprehensive list, please visit: https://www.im.natixis.com/intl/podcasts-and-other-media

 

The provision of this communication and/or reference to specific securities, sectors, or markets within this communication does not constitute investment advice, or a recommendation or an offer to buy or to sell any security, or an offer of any regulated financial activity. Investors should consider the investment objectives, risks and expenses of any investment carefully before investing. The analyses, opinions, and certain of the investment themes and processes referenced herein represent the views of the individual(s) as of the date indicated. These, as well as the portfolio holdings and characteristics shown, are subject to change and cannot be construed as having any contractual value. There can be no assurance that developments will transpire as may be forecasted in this material. The analyses and opinions expressed by external third parties are independent and does not necessarily reflect those of Natixis Investment Managers. Any past performance information presented is not indicative of future performance.

 

Although Natixis Investment Managers believes the information provided in this communication to be reliable, including that from third party sources, it does not guarantee the accuracy, adequacy, or completeness of such information. This material may not be distributed, published, or reproduced, in whole or in part.

 

DNCA Finance

Affiliate of Natixis Investment Managers.

DNCA has been approved as a portfolio management company by the French Financial Market Authority

(Autorité des Marchés Financiers) under number GP00-030 since 18 August 2000.

19, place Vendôme 75001 Paris, France.

www.dnca-investments.com

 

DNCA Finance is a limited partnership (Société en Commandite Simple) approved by the Autorité des Marchés Financiers (AMF) as a portfolio management company under number GP00-030 and governed by the AMF's General Regulations, its doctrine and the Monetary and Financial Code. DNCA Finance is also a non-independent investment advisor within the meaning of the MIFID II Directive. DNCA Finance – 19 Place Vendôme-75001 Paris – e-mail: dnca@dncainvestments.com – tel: +33 (0)1 58 62 55 00 – website: www.dnca-investments.com

 

Natixis Investment Managers

RCS Paris 453 952 681

Share Capital: €178 251 690

43 avenue Pierre Mendès France

5013 Paris

www.im.natixis.com

 
DR-64885

Subscribe to our newsletter

Sign up to receive all the latest insights