6
Consider bonds without borders

KEY TAKEAWAYS

Easy monetary policies outside the U.S. are supporting non-dollar bonds. Dipping a toe into bonds overseas can expand diversification and income potential.

The case for going global doesn’t stop at equities. Some of the best bargains today lie in international bonds. Also consider that the U.S. bond market, at $36 trillion in size, represents roughly one-third of the $96 trillion global bond market. Expanding the opportunity set internationally can aid portfolio diversification, a key tool for managing risk (even if it can’t promise gains or rule out losses).

Central banks play a part in this opportunity. As the Fed targets higher rates, policy stimulus is likely to prevail in Europe, where European Central Bank (ECB) bond buying should underpin government and corporate bonds. We see the ECB buying 4-5 billion euros of corporate debt per month in the primary market this year, roughly 15% of estimated monthly issuance, and some 1 billion euros per month in secondary markets.

GLOBAL CENTRAL BANKS ARE BUYING MORE BONDS
Central Bank Balance Sheets, 2003–2016

Graph: Global central banks are buying more bonds

Sources: Thomson Reuters, BlackRock, as of June 2016.


This is especially supportive of high-quality investment-grade debt. In addition, a slow pace of Fed rate hikes is likely to mute the dollar’s rise, which makes for a compelling opportunity to tap the potential that higher-yielding non-U.S.-dollar bonds can provide.

Credit spreads have narrowed significantly in anticipation. In addition, a slow pace of Fed rate hikes is likely to mute the dollar’s rise, which makes for a compelling opportunity to tap the potential that higher-yielding non-U.S.-dollar bonds can provide.

EMs AND PERIPHERAL EUROPE LOOK ATTRACTIVE
Current Yields on Global Bond Indexes

Graph: EMs and peripheral Europe look attractive
Sources: Bloomberg, BlackRock as of June 30, 2016. Notes: U.S. IG Corporate represented by the Bloomberg USD Investment Grade Corporate Index; U.S. Dollar EMD by Bloomberg USD Emerging Market Sovereign Bond Index; Local Currency EMD by Bloomberg Emerging Market Local Sovereign Index.

Carefully consider the Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses or, if available, the summary prospectuses which may be obtained by visiting blackrock.com/latamiberia. Read the prospectus carefully before investing.

In Latin America and Iberia, for institutional investors and financial intermediaries only (not for public distribution). This material is for educational purposes only and does not constitute investment advice or an offer or solicitation to sell or a solicitation of an offer to buy any shares of any fund or security and it is your responsibility to inform yourself of, and to observe, all applicable laws and regulations of your relevant jurisdiction. If any funds are mentioned or inferred in this material, such funds have not been registered with the securities regulators of Brazil, Chile, Colombia, Mexico, Panama, Peru, Portugal, Spain Uruguay or any other securities regulator in any Latin American or Iberian country and thus, may not be publicly offered in any such countries. The securities regulators of any country within Latin America or Iberia have not confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America or Iberia. The contents of this material are strictly confidential and must not be passed to any third party.

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