Nomura: US CPI Could Drop to 2% by Year-End, Recommends Increasing Allocation to Emerging Market and Financial Bonds

Jinse Finance reported that Nomura Asset stated on Thursday that it expects US inflation to fall to 2% as early as the end of this year. However, US Treasury yields will remain in a high range in the short term. In addition to US Treasuries, it is recommended to increase allocations to higher-yielding bonds such as emerging market debt and financial bonds. Richard Hodges, manager of the Nomura (Ireland) Global Multi Asset Income Bond Fund, believes that since inflation is still well above target, the Federal Reserve's rate cuts will be gradual. The US government's continued fiscal spending will put upward pressure on long-term yields. "The fastest scenario is that US inflation will fall to 2% by the end of this year, because Trump wants to cut rates further, and the new Fed chair will definitely be more compliant," said Hodges. He pointed out that the current interest rate futures market has fully reflected the expectations of the dot plot, but with Trump using all his influence to intervene, the policy rate cuts will be greater than expected. "But that's for the future; for now, there won't be much change, and yields will just move sideways." He is also optimistic about emerging market bonds, saying that not only do they offer higher yields, but they will also benefit from the continued decline of the US dollar. By adopting a diversified allocation strategy among emerging countries, he is optimistic about countries such as Romania that are integrating into the EU and the Eurozone, expecting them to experience yield spread convergence and have the opportunity to increase capital gains.