U.S. President Trump shortened his trip and returned to Washington after attending the G7 summit in Canada in response to escalating tensions in the Middle East. As conflicts flare up in the region, U.S. stock markets experience increased volatility. However, global corporate bonds have maintained positive returns over the past week, past three months, and year-to-date, with the past week seeing the highest returns among investment-grade bonds. According to investment trust firms, following a three-week streak of outflows ending in late April, global bond fund investments have entered a phase of continuous net inflows for seven weeks, indicating the staying power of global corporate bonds in volatile market conditions.

The KGI A-grade corporate bond research team notes that looking back at major Middle Eastern conflicts in recent years, after the Israel-Palestine conflict in 2021, global A-grade corporate bonds rose by 2.22% three months post-conflict, while U.S. treasuries rose 1.58%. Six months after the conflict, global A-grade corporate bonds were up 2.20%, compared to 1.02% for U.S. treasuries. In 2023, following the outbreak of war between Israel and Hamas, global A-grade corporate bonds surged 8.06% three months after the outbreak, while U.S. treasuries increased by 5.69%. Six months later, global A-grade corporate bonds accumulated a rise of 7.89%, with U.S. treasuries up 4.63%. One year after the outbreak of conflict, global A-grade corporate bonds rebounded by as much as 14.03%, compared to a 9.35% increase in U.S. treasuries.

This demonstrates that when regional tensions escalate, global A-grade corporate bonds not only outperform U.S. treasuries initially but also rebound more significantly as market sentiments stabilize, challenging the previous notion that long-term treasuries serve as the best safe haven. The KGI A-grade corporate bond ETF research team states that once risk sentiments calm down, the market will revert to a fundamentals-based approach. Recent U.S. inflation data for May indicates that both the CPI and core CPI were below market expectations, alleviating concerns about potential price surges from Trump's trade tariffs. Latest surveys indicate that overall inflation is easing, attributed to a decline in energy prices.

Additionally, a recent report by the University of Michigan revealed that the U.S. consumer confidence index rose to 60.5 in June, surpassing expectations, with consumers' inflation expectations for the next year showing a noticeable decline, reflecting a more positive outlook among the public as trade issues trend towards resolution. Nonetheless, uncertainties regarding tariffs and fiscal deficits persist, and it is anticipated that the Federal Reserve will slow down the pace and magnitude of interest rate cuts, with the yield on 10-year treasuries likely remaining high between 4-5%.

To avoid being adversely affected by long-term interest rate fluctuations, bond investors are advised to lock in coupon returns. Short- to medium-term corporate bonds are less affected by long-term interest rate swings and offer more attractive coupon returns than treasuries. The KGI A-grade corporate bond ETF research team points out that, compared to ultra-long bonds with maturities of over 20 years, bonds with durations of around 10 years are less sensitive to interest rate changes, facing lower risks of rate fluctuations. If credit ratings can be raised to A-grade, this will further reduce the chance of default risk.