This is a sponsored article from BNP Paribas Asset Management. 

Marketing Communication – For professional investors only. For institutional investors only. Not for further distribution.

James McAlevey, head of global aggregate & absolute return at BNP Paribas Asset Management (BNP Paribas AM), discusses how active unconstrained bonds mitigate risks throughout market cycles.

Q1: What’s driving interest in absolute return bond strategies? How do they differ from traditional fixed income?
JM: Traditional long-only fixed income strategies are under pressure due to their reliance on benchmarks. When rates rise, these funds typically decline in value. In contrast, absolute return bond strategies are designed to generate positive returns regardless of market conditions, targeting excess returns of 2% to 3% over cash with low volatility. In 2022, these strategies yielded positive returns while traditional fixed income benchmarks faced significant drawdowns.

Absolute return bond strategies enable flexible capital allocation across a diverse range of global fixed-income assets, including government securities, corporate bonds, and structured products. 

If we do not favour a particular asset class, we can choose not to invest or even short it.

Q2: What recent market changes are impacting your strategy?

JM: We started the year short on US corporate credit and the dollar, anticipating a slowing labour market and stagflation. With US tariffs impacting growth, we see downside risks, particularly in the UK, where the labour market is weakening. We favour nominal government bonds in the UK and New Zealand, and inflation-linked bonds in the US and UK. In Japan, we are short on the front and belly of the curve but long on the long end. Additionally, we remain short on the US dollar and have reinstated short positions in European investment-grade credit, expecting market complacency about underlying challenges.

“Our strategy delivered strong returns during the significant downturn this April, while most of its peer group experienced drawdowns.”

James McAlevey, head of global aggregate and absolute return at BNP Paribas Asset Management 

Q3: Is your belief in mortgage-backed securities (MBS) still strong?

JM: Yes, we continue to favour MBS over US corporate credit and have increased our exposure. This allows us to short credit while maintaining carry, holding higher-rated assets that we believe will outperform in the medium term.

Q4: What trends do you foresee shaping the future of absolute return strategies?

JM: Ongoing market volatility in fixed income favours absolute return strategies. With expected declines in cash rates, duration-sensitive products present attractive total return prospects, but stagflation risks require flexible duration allocations. Our global absolute return bond strategy maintains a symmetric duration range of about zero (-4 to +4 years), lower than traditional products, allowing for profit from interest rate fluctuations with reduced risk.

Q5: What sets your investment approach apart from peers?

JM: Our success hinges on leveraging the firm’s collective expertise through collaboration across our Global Fixed Income Platform. By promoting open dialogue, we enhance client outcomes and maximise our multi-sector strategy. We prioritise portfolio construction to generate ideas and ensure optimal allocation for consistent performance and capital preservation during volatility.

Q6: How has BNP Paribas AM’s flagship strategy performed?

JM: Our strategy ranks highly compared to both the Morningstar peer group and a narrower group of absolute return bond strategies. Notably, it delivered strong returns during the significant downturn in April, whereas most peers faced drawdowns. Our active management allowed us to capitalise on the initial unwinding of US exceptionalism in Q1 and benefit from the reversal in risk sentiment in May and June.

To learn more about how BNP Paribas AM’s absolute return bond strategy navigates uncertainty with flexibility, visit our website for further details. 

Visit Singapore | Hong Kong | Others

 

---

Disclaimer Section 

No assurance can be given that any forecast, target or opinion will materialise.

Credit risk and risk of capital loss: The value of the investments and the revenues they generate can decrease and the capital invested not be recovered in full. One or multiple reference entities in the CRS underlying portfolio can default. Any default may cause a partial or total loss that negatively affects the performance of the investment. This risk could translate into losses of principal and/or losses of interest revenue.

*Source: Morningstar, as of 30 June 2025. Past performance is not indicative of current or future results.

This advertisement has not been reviewed by the Monetary Authority of Singapore and the Hong Kong Securities and Futures Commission. It is produced for information purposes only and does not constitute 1. an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or 2. investment advice. Investments involve risks. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial investment. Past performance is not indicative of current or future performance. Investors should read the offering document for further details including the risk factors and should seek advice from a financial advisor before investing. This material is issued and has been prepared by BNP PARIBAS ASSET MANAGEMENT Singapore Limited, with its registered office at 20 Collyer Quay, #01-01, 20 Collyer Quay, Singapore 049319, Company Registration No. 199308471D and BNP PARIBAS ASSET MANAGEMENT Asia Limited, with its registered office at Suite 1701, 17/F, Lincoln House, Taikoo Place, Quarry Bay, Hong Kong.

This is a sponsored article from BNP Paribas Asset Management.