• Divergences return. The Fed signals it is all but certain to raise rates in December. At the same time, the ECB signals its growing concerns on downside risks and argues for the need to "re-examine" its degree of policy accommodation. “Divergence” is back. With the surprisingly strong October U.S. payroll report putting a Fed hike in December even more firmly in market expectations and weakening inflation and growth in Europe putting ECB expansion of accommodation on track for December, the strengthening dollar reflects the return of “divergences” in central bank policy as a dominant investment theme.
  • Some interesting swaps. Dramatic moves in what might be viewed as an arcane area of the bond market represent an important signal of change in the underlying market structure. The post-crisis-era shifts continue to reverberate in the markets with the latest iteration in the multi-trillion dollar interest rate derivative market. The upshot for retail bond investors is the illustration of the increasing costs for bond market liquidity.

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The sector performance and yields listed are represented by, respectively: Barclays US High Yield Index, S&P Leveraged Loan Index, Barclays US Securitized Ex-MBS Index, Barclays US Mortgage Backed Securities Index, Barclays US Corporate Investment Grade Index, Barclays Global Aggregate ex-USD Index, JP Morgan EMBI Global Diversified Index, Barclays US Inflation Protected Securities Index and Barclays US Treasury Index. The reference indices are represented by the Barclays US Aggregate and the Barclays Municipal Bond Index.

Investing involves risk, including possible loss of principal.

Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments.

Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities.

International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/ developing markets, in concentrations of single countries or smaller capital markets.

Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

The opinions expressed are those of BlackRock as of Oct. 12, 2015, and may change as subsequent conditions vary. Information and opinions are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable. The information contained in this report is not necessarily all-inclusive and is not guaranteed as to accuracy. Past performance does not guarantee future results. There is no guarantee that any forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment. Investment involves risk. Reliance upon information in this report is at the sole discretion of the reader.

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