From Morningstar: 2024-06-07 07:42:00

Eurozone bond yields rose slightly after the European Central Bank cut interest rates by 0.25 percentage points, leading to adjustments in monetary policy. Fixed-income managers discuss where investors should focus post the first rate cut in five years. After the cut, Italian and German bond yields rose slightly.

The market reaction to the rate cut was relatively muted, with a focus on revised inflation estimates. Experts suggest managing liquidity needs as interest rates fall, making cash less appealing. The inverted yield curve in the eurozone indicates temporary short-term rates, warning of potential future volatility in bond markets.

Some bond managers prefer peripheral country debt, medium-term bonds, or high-yield bonds post-ECB meeting. Positions vary among managers, with a preference for short to medium maturities in the euro yield curve. Maintaining bond duration between three and five years may offer attractive yields, higher than inflation rates.

Investors are advised to consider medium-term bonds and debts of lower-rated European states after potential future rate cuts. The appeal of income from bonds remains, with structural support for European bonds due to smaller fiscal deficits relative to the US. High yield bonds in global credit are seen as valuable, especially in defensive sectors like telecom and utilities.



Read more at Morningstar: Where to Invest in the Bond Market After the ECB Cut