Bonds have emerged as an attractive asset class again, but the yield curve inversion suggest to be mindful about the maturity selection. Using the US Treasury market as a benchmark, the typical pattern is that the yield curve flattens in a tightening cycle and steepens in an easing cycle. The current cycle is not an exception, and the last time the relationship between short and longer bonds yield was equally inverted, the level of shorter bond yield was well above 10%, some 40 years ago.
In other words, the historical pattern suggests that yields on shorter maturities could fall by about 200 basis points whilst longer bond yields stay close to the same level, or vice versa. Consequently, more value is to be found in bonds and strategies focusing on shorter maturities whilst longer bond yields are not particularly attractive on a relative basis.
