- Investment Strategy Analyst
Asset classes
Hong Kong (香港), Individual
Change
The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed.
We have seen a striking divergence across the yield curve in the past six months. Thirty-year yields have risen in all major developed markets — most sharply in the UK and Japan — while 2- and 10-year yields have declined across the US, eurozone, and UK. Japan stands out as the only market where shorter-end yields remain elevated.
Short-term rates are driven by near-term economic signals and central bank policy. As tariffs have exacerbated growth concerns and weakened sentiment, markets have increasingly priced in rate cuts, pulling 2- and 10-year yields lower, particularly in the US. On the other hand, long-term rates are shaped by structural drivers of future growth, inflation, and fiscal sustainability. These factors have pushed long-end yields higher as developed governments continue to prioritize fiscal expansion.
Yield curve dynamics are becoming increasingly important to monitor. Beyond fixed income, the curve has implications for equity valuations, credit spreads, and cross-asset correlations. Shifts in curve steepness and term premia often precede changes in broader market regimes. For investors, understanding the yield curve is not just a bond market exercise — it is a critical lens for interpreting the underlying state of the economy and positioning portfolios accordingly.
Investment implications
- Long bonds may become increasingly attractive. Structural growth headwinds — from stagnant population trends to a weakening jobs market — suggest long-end yields could stabilize or fall over time. Elevated current yields offer a chance to lock in income and potential upside if growth disappoints and inflation risks fade.
- Higher long-end yields give bonds greater scope to rally if growth slows or equities weaken, helping to restore their role as a diversifier in multi-asset portfolios. Long bonds may be better able to play the downside protection role in portfolios going forward.
- With the steepening of the curve, cyclicals and value stocks stand to benefit, while higher discount rates may challenge rate-sensitive sectors. The resulting dispersion may benefit managers who can rotate across sectors and styles to exploit price dislocations.
What we are watching
- Debt supply dynamics: Government bond auction outcomes and fiscal announcements in the UK, Japan, and US will be key indicators of how much further long yields might rise.
- Growth vs inflation: If growth weakens more sharply, central banks may cut faster, pulling the whole curve lower. Conversely, sticky inflation or fiscal slippage could entrench higher long-end yields despite front-end easing expectations.
- Central bank divergence: As growth and inflation dynamics vary across countries, central banks could “go their separate ways” on adjusting interest rates to address the specific challenges facing their economies.
Experts
- Product Reporting Lead
DISCLOSURE
This material and its contents may not be reproduced or distributed, in whole or in part, without the express written consent of Wellington Management. This document is intended for information purposes only. It is not an offer or a solicitation by anyone, to subscribe for shares in Wellington Management Funds (Luxembourg) III SICAV (the Fund). Nothing in this document should be interpreted as advice, nor is it a recommendation to buy or sell shares. Investment in the Fund may not be suitable for all investors. Any views expressed are those of the author at the time of writing and are subject to change without notice. Investors should carefully read the Key Facts Statement (KFS), Prospectus, and Hong Kong Covering Document for the Fund and the sub-fund(s) for details, including risk factors, before making an investment decision. Other relevant documents are the annual report (and semi-annual report).
© 2025 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The Overall Morningstar Rating for a fund is derived from a weighted average of the three, five, and ten year (if applicable) ratings, based on risk-adjusted return. Past performance is no guarantee of future results.
Issued by Wellington Management Hong Kong Limited. Investment involves risk. Past performance is not indicative of future performance. This document has not been reviewed by the Securities and Futures Commission of Hong Kong.
