We do not expect the weakness witnessed in 2013, but a difficult February 2015 thus far warrants another look at assessing interest rate risk, especially given the likely start of Federal Reserve (Fed) interest rate hikes later this year.
Sector allocation, maturity exposure, time horizon, and whether interest income is reinvested or simply spent, all influence potential total returns during a potential bear market for bonds.
Download the full version of Reassessing Interest Rate Risk: click here to download (PDF).
Fixed income markets showed signs of a growth scare in July 2015, with lower real yields, lower inflation expectations, and a flatter yield curve.
The markets’ reaction may be a signal to the Fed that September 2015 is too early for an interest rate increase.
Recent growth concerns may be creating opportunities.
Download the full version of Summer Growth Concerns: click here to download (PDF).
We continue to expect roughly flat bond returns for 2015, as the choppy market environment witnessed over the first half of 2015 continues.
The challenging, low-return environment confronting bond investors is likely to persist.
Download the full version of Hammer Flat: Midyear Bond Market Outlook, click here to download (PDF).
June 2, 2015 - Key Takeaways
Lingering uncertainty over Greece, U.S. economic growth, and the Fed may continue to create a tug-of-war on bond prices that will likely continue to lead to a low-return environment.
We believe additional bond market strength is likely limited.
Download the full version of Bond Tug-of-War: click here to download (PDF).
February 3, 2015 - Key Takeaways
A soft start for the U.S. stock market in 2015 once again illustrates the diversification benefit of high-quality bonds even at very low yields.
Even in a low-yield environment, bonds provide a cushion as price movements, not yields, are the primary buffer to equity movements.
An allocation to core bonds, in addition to more attractively valued high-yield bonds, may make sense for investors.
Download the full version of Why Own Bonds?, click here to download (PDF).
Recent central bank action has reinforced the “lower for longer” interest rate theme in global bond markets.
This week’s Fed meeting may temper marketfriendly central bank trends, but seems unlikely to alter the current environment.
Higher-yielding sectors, such as high-yield bonds and emerging markets debt, may benefit from the ECB’s bold purchase plan, while high-quality bond yields will potentially remain in a lower range for longer.
Download the full version of All About The Central Banks: click here to download (PDF).
For just the second time in the last 30 calendar years, short-term 2-year Treasury yields increased while longer-term 10- and 30-year Treasury yields fell.
One factor from 2014 that remains in place at the start of 2015 is the lure of Treasury yields on a global basis.
Although bonds may continue to be supported by lower oil prices and European growth fears, we believe U.S. economic growth and the start of Fed rate hikes will translate to a lower-return environment than investors experienced in 2014.
Download the full version of Curve Ball: click here to download (PDF).
We find it premature to draw conclusions regarding oil prices and the performance of the broad high-yield bond market.
Default rates, the pace of economic growth, and the strength of credit quality metrics among high-yield issuers—not oil prices—will be the primary drivers of high-yield bond market returns.
Download the full version of High-Yield Bonds & Oil Prices: click here to download (PDF).
The Fed will end outright bond purchases this week, barring any surprises from this week’s Fed meeting.
The end of bond purchases should not create much market reaction, as bond investors focus more on global economic growth and expectations for interest rate hikes.
The Fed’s breakup will not be a clean one as it maintains a steady influence in the MBS market.
Download the full version of Breaking Up: click here to download (PDF).
September 30, 2014 - Multiple factors, none of them fundamental, have driven high-yield bond prices weaker in September.
Performance versus investment-grade bonds is approaching an extreme and may signal a reversal.
Download the full version of Late Summer Setback: click here to download (PDF).