Investors are advised to avoid investment in high-yield bonds, especially those tied to Chinese real estate because of high debt and a sluggish recovery, says SCB Chief Investment Office (SCB CIO), a unit of Siam Commercial Bank. Kampon Adireksombat, first senior vice-president and head of SCB CIO, said the US economy is likely to have a soft landing because of slowing inflation. In the office's assessment, the US economy is projected to grow by 1.0%, 1.1% and 1.8% this year, 2024 and 2025, respectively. US inflation is likely to decelerate, while the Federal Reserve suggested it is inclined to halt interest rate hikes and anticipates a rate cut in mid-2024. These factors will likely contribute to a gradual decline in returns for both short- and long-term bonds over the next 6-12 months, said SCB CIO. "Persistently elevated interest rates throughout the remainder of the year could elevate the credit risk associated with high-yield debentures, especially those linked to heavily indebted businesses like Chinese real estate firms," said the think tank. "We advise against investing in high-yield bonds, particularly within the Chinese corporate bond market." With an improving economy and slowing inflation, the US central bank is expected to cut interest rates by 1% and 1.2% in 2024 and 2025, respectively. The Fed interest rate at the end of 2025 is projected to be 3.4%, which was last posted at the end of 2008, said SCB CIO.
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