HSBC stresses stable income as crucial in the current environment and maintains bonds as a core portfolio component. With inflation largely contained and rate-cut cycles nearing completion, the bank prefers UK gilts, Australian government bonds and selected emerging market debt, favouring investment grade over high yield and medium-to-long duration in EUR and GBP, while keeping medium duration in USD.

Income strategies across sovereign and credit

"Stable income is critical in an evolving financial and geopolitical landscape, both as a source of returns and a means to reduce portfolio volatility, supporting bonds as a key portfolio component in both good and bad times."

"We’re now in a situation in which inflation is largely in check across most developed markets, and we believe the effect of the oil price spike should be short-lived. Central banks are almost done with their cycles of rate cuts, which leads us to look for the best relative value across the bond spectrum."

"The US Supreme Court’s recent ruling on US trade tariffs should have little impact on bond yields. But the high US fiscal deficit may limit the chances for yields to fall. Instead, we see better prospects in the UK and some emerging markets."

"We prefer UK gilts and Australian government bonds among all developed market government bonds, while EM local currency sovereigns offer lower correlation to risk assets."

"On the credit side, we prefer investment grade and emerging market bonds over high yield, where credit spreads remain tight. We look for value in emerging markets with solid fundamentals and seek attractive yields from quality issuers. Our active selection approach enables us to capture duration opportunities tactically and benefit from volatility."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)