Fixed income’s next chapter

Nov 2, 2016
By BlackRock

Global bond markets are entering a new phase as the effectiveness of monetary stimulus wanes, fiscal stimulus grows more likely and signs of reflation appear.


Where yield is the goal, investors will have to diversify to seek it. Even as monetary policies diverge, demographic and other trends are likely to help keep rates low.

More than ever, we think it makes sense to invest globally and across sectors to target the most attractive sources of duration, carry and currency exposure.

Quantitative easing has altered the risk-reward calculus for most fixed income investments, with major-economy government bonds showing an especially dramatic shift.

New market dynamics have shown the limitations of traditional investment structures. We believe most investors may benefit from approaches that are flexible, diversified and risk-aware.

A SHIFT IN RISK PROFILES
Fixed income cushion and volatility, 2016

Sources: BlackRock Investment Institute, Bloomberg and JP Morgan, October 2016. The cushion is defined as the percentage point rise in yield that would cause a price decline large enough to wipe out one year’s worth of income and is calculated by dividing yield by duration. Yield volatility is based on daily data over the last year shown on an annualized basis. Indices used: Bund: Barclays Germany Government All Bond Index; JGB: FTSE Japan Government Bond Index; U.S. Treasury: Barclays U.S. Treasury Index; Global IG: Barclays Global Aggregate Corporate Index; EMHC: JP Morgan EMBI Global Index; Global HY: Barclays Global Corporate High Yield Index. This illustrative example has significant limitations. It cannot account for the impact that economic, market, and other factors may have on an actual investment. Return of any portfolio will vary materially from the return shown based on numerous factors, including, but not limited to, current market conditions, the specific securities in the portfolio, and the current leverage costs.

 

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Rick Rieder
Managing Director, Chief Investment Officer of Global Fixed Income
Managing Director, Deputy Chief Investment Officer of Global Fundamental Fixed Income, and Head of Global Bonds
Managing Director, Global Head of Fundamental Credit
Managing Director, Head of BlackRock's Emerging Markets Fixed Income