US bond markets are not accurately pricing liquidity risk, according to Jonathan Duensing, head of US fixed income at Amundi. Despite the quantitative tightening from the US central bank, liquidity spreads are not as high as they should be, possibly due to the novelty of higher nominal yields in certain areas of the corporate bond market. Duensing suggests that investors may be focusing more on the absolute yield level rather than being appropriately compensated for the risks they are taking, particularly in terms of liquidity risk. He anticipates an uptick in defaults in the high yield bond market as tighter monetary policy affects the real economy. Duensing's central case is that the US economy will significantly slow down in 2024, leading to a flight to quality bid and an increase in credit spreads. Amundi's fixed income portfolios have been shifting towards a longer duration bias and focusing on higher quality credit, with financials and banks in the investment grade corporate bond market considered attractive relative to non-financials.
Meanwhile, Mike Riddell, portfolio manager at Allianz Global Investors, admits that his bond fund's recent poor performance was due to underestimating the US growth story and not appreciating the liquidity in the system. The Allianz Strategic Bond fund, managed by Riddell and Ravin Seeneevassen, has seen investor withdrawals and decreased from £2.9bn to just over £1bn in the past 18 months. Riddell acknowledges the mistakes made and the impact on the fund's performance.
Source: [Fund Selector Asia](https://fundselectorasia.com/bonds-arent-adequately-pricing-liquidity-risk-amunds-duensing/) [53723922], [Citywire](https://citywire.com/funds-insider/news/allianz-s-mike-riddell-we-underestimated-the-us/a2439872) [14ca128f]