Eléonore Bunel arrived at Lazard Frères Gestion, where she currently heads the corporate and financial fixed income area, in April 2018. She joined the firm from Axa Investment Managers, where she began her career and where she remained for 16 years, managing several investment funds. investment in credit. Bunel has a master’s degree in Mathematics applied to Economics and Finance from the University of Paris XIII. During a visit to Madrid, he answered questions from elEconomista.es.
Are we at a historic moment to position ourselves in the 10-year US bond? Or should we wait to try to buy it at 5%? [la entrevista se realizó a mediados de noviembre, cuando el bono se situaba cerca del 4,4%; hoy está en el 4,26%].
This question makes more sense after Donald Trump’s victory in the US presidential election. His policies will put pressure on inflation, with the deficit likely higher. The long end of the curve Treasury could suffer and perhaps reach a higher level in the medium term. In the short term, the movement we have seen in the last six weeks has been very violent, and if disappointing employment data is published in the US at the beginning of December, we could see a slight reversal. In any case, I don’t know if we will reach 5%, but a level close to 4.5% makes sense. The 10-year bond will likely suffer, and the 2-year may fall if the labor market continues to normalize and the Fed continues to cut rates. The market expects only 70 basis points of cuts between now and the end of 2025 in the US. That’s nothing. If the employment data disappoints, that could cause the 2-year to do very well and the 10-year to continue at the current level or even rise [su rentabilidad] by Trump’s policies. That’s why I feel very comfortable having our portfolio positioned to take advantage of the steepening of the US curve between 2 and 10 years.
But is it time to get into the ‘T-Note’?
It is to adopt a short-term tactical positioning for the end of the year, due to the possible rebound that may occur. But from a medium-term perspective, today I would not buy Treasuries of the United States.
Between European and American bonds, which do you prefer?
At that point, we preferred to be long the Europeans. Growth in Europe is under pressure, unlike in the United States. If the tendency to disinflation continues, the ECB will continue cutting next year; and if that trend disinflationary is accentuated, the Central Bank could even do more. Growth is clearly under pressure with Germany, perhaps in France… For all these reasons we prefer to be long in European bonds, while in the United States, what we will implement is that strategy of positioning ourselves on the curve. But in the bundle you can be long – a key entry level in the bundle is 2.5% -, and in the Italian bond. Perhaps I would be more cautious with the French bond, which could be more volatile next year.
“In the ‘high yield’ universe, the duration has dropped from 5 years to just three, with the same differential”
Do you see a debt crisis in France?
We are not at that point. I think the Government will take measures to try to reduce the deficit, but it will not be quick. It will take months. Italy is a good example of a difficult situation that was managed to overcome. It will take time, but I don’t expect any debt crisis.
High yield bonds are doing very well this year. Do they still have attractiveness compared to investment grade, despite the increases they have already experienced in price?
Investment grade could be a good option today, because the total return of a universal bond index investment grade It comes mostly (two thirds) from the interest rate component, and another third from the credit spread. We do not expect spreads to widen unless a recession occurs. But our base case is a soft landing, and this is very positive for both credit and high yield. If next year we expect rate cuts in Europe, with the investment grade you will benefit from the coupon, plus the price increase derived from said cuts. In the case of high yieldtwo-thirds of the total return comes from the spread and another third from rates, but the coupon is higher than in investment grade. If you wait for rate cuts and you spread Continue as before, you will earn 5% or 6% with the coupon. And the second point is that the universe of high yield has changed. Four years ago, the average maturity of these bonds was about 5 years. Now it is at three or three and a half, with the same differential. Furthermore, the fundamentals remain good and the leverage very low. For all this, high performance remains attractive. We have seen very strong inflows of money. It’s normal, the returns are so attractive that people want to have fixed income in their portfolios, whether investment grade or high yield.
What sectors do you find most interesting at the moment?
We feel very comfortable with the fundamentals of the financial sector, and especially with European banks. In this sector we position ourselves through subordinated debt, which allows us to obtain higher returns on investment grade issuers. As for corporate debt, we like telecoms, the health sector… Little by little we are returning to the chemical sector, and we remain underweight in automobiles, we have been for several quarters. This is not the time to go back to them, because we are going to have pressure due to Trump’s tariffs.
“We like the bonds of banks, ‘telecos’ and companies in the health sector”
To conservative investors who in 2022 (with the collapse of bond prices) verified that fixed income also loses money, what would you say? 2024 seemed to be going well, but after a terrible October, investors are losing money again on the year on global debt. What can you expect?
The fixed income market has suffered a lot of volatility due to interest rates. It’s normal, we are in a new era. There have been many uncertainties: about Trump’s election, about the data coming from the US… But the situation is not that of 2022. Currently the investment grade offers 3.5%, and the high yield, As I mentioned, between 5.5% and 6%. To those investors I would say that they have to be in this asset class. It’s true that October was difficult, but it actually offered a good entry point. When these types of movements occur, you must take advantage of them to reinforce your positioning.
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