In the face of an uncertain economic environment, Dorval AM identifies sovereign bonds as a key asset for diversified portfolios. In Europe, the growth forecast for 2025 and 2026—supported by the ECB, the purchasing power enabled by disinflation, and the German budget plan—makes long-term bonds particularly attractive. These bonds offer asymmetric protection, helping to offset equity losses during economic slowdowns. This strategy thus provides a unique opportunity to strengthen portfolio resilience while maintaining attractive return potential.
Focus on Europe: If growth continues, long-term rates will remain near 3%. But in the event of a slowdown, rates could fall, which would boost the appeal of bonds. Dorval AM recommends a diversified portfolio with different credit ratings to capture higher returns and protect against external economic shocks. In this context, a balance between credit quality and duration becomes essential to maximize long-term performance while managing short-term volatility.
In the United States, despite trade tensions and economic stagnation, Treasuries offer attractive real yields, particularly on inflation-indexed bonds. However, currency risk management is essential to optimize this opportunity. Dorval AM recommends monitoring economic policy developments and the Fed’s response to adjust allocation strategies in light of stagflation risks and upcoming rate adjustments.
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