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Fixed Income Endgame: Negative Yields?

Is this the end of fixed income as we know it?

This Monday, the Dow Jones Industrial Average dropped over 2000 points (at one point triggering a temporary halt in trading) and the 10-year U.S. Treasury hit an intra-day all-time low yield of 0.32%. The message here is that last week's surprise U.S. rate cut may not have been enough to quell investors' nerves. In fact, markets are already projecting another significant cut in the Fed Funds Rate at the next FOMC meeting, propelling the front end of the U.S. Treasury yield curve closer and closer to zero.

Is this the beginning of the end for U.S. fixed income returns, or merely a new chapter where negative rates feature more prominently? The following papers discuss the theory behind negative rates and the outlook for global fixed income markets in these volatile, uncertain times.

basketball fixed income


High-Yield Bonds: Analyzing risk and return when rates are negative (Qontigo, 2020)

As investors scrabble around for yield, Qontigo argues in favour of high-yield bonds as a diversification tool against sovereign debt (which can be negative-yielding) and more highly rated investment grade credits.

Global Fixed Income Strategy (Invesco, Mar 2020)

For compliance reasons, this paper is only accessible in certain geographies

The latest strategic outlook from Invesco's Global Fixed Income team asks whether central banks are running out of ammunition while also providing a concise overview of the global outlook for interest rates.

Outlook for emerging-market debt remains bright after strong 2019 (Eaton Vance, 2020)

For compliance reasons, this paper is NOT accessible in the United States and Canada

Bradford Godfrey, CFA, surveys the emerging market debt landscape, providing insight into the outlook for EM debt markets.


Fixed Income: Zero rates do not mean zero returns (Amundi AM, 2020)

For compliance reasons, this paper is NOT accessible in the United States

At the start of a new decade, Amundi Asset Management reminds us that a zero-rate environment (or lower) does not necessarily mean zero return for bond investors.

The Power of Helicopter Money Revisited: A New Keynesian Perspective (Bank of Canada, 2020)

Will central banks literally 'make it rain?' The bank of Canada analyzes two New Keynesian models for the provision of helicopter money.

Is Inflation Frozen Too? Should the Fed let it go? (BMO GAM, Feb 2020)

Given the economic expansion over the past decade, why is inflation still so low? BMO GAM investigates in this 8-page paper.

Fixed Expense Investing: Not as strange as it sounds (Neuberger Berman blog, Dec 2019)

Neuberger Berman explains four reasons why investors may still wish to buy negative-yielding bonds. One reason is that roll yield may still exist if the curve is positively sloped.

Negative Interest Rates: The Logical Absurdity (Enterprising Investor blog, 2020)

Are negative nominal interest rates really that absurd? Financial institutions may need to use sovereign debt for collateral, even if these bonds have negative yields.

Negative Rates: Negative View (PIMCO blog, Dec 2019)

Could negative rates do more harm than good? PIMCO states why negative policy rates may have unfavorable consequences for banks, pension funds, insurance companies, and more.

Economic Compass: A primer on low and negative interest rates (RBC GAM, 2019)

The authors attempt to explain why rates are as low as they are, to identify the buyers of low and negative-yielding debt, and to fathom just how long this situation can persist.

Podcast: On negative interest rates (Epoch, Sep 2019)

In this podcast, Epoch attempts to explain negative interest rates, their impact upon profitability in the banking sector, and how they have affected the economies of Japan and Europe.


U.S. Fixed Income Market Update (BMO GAM, Mar 2020)

Risk-off moves prompted by coronavirus fears have sent US Treasury yields to new all-time lows. US economic data is still relatively positive, but the same cannot be said for international data.

Emergency interest-rate cuts are here (Manulife AM, Mar 2020)

For compliance reasons, this paper is only accessible in certain geographies

The Fed instituted an emergency rate cut of 50bp this March, the first such emergency rate cut (between FOMC meetings) since 2008. Manulife Asset Management discusses the market implications.

Podcast: All the Credit, Episode 2 (PGIM Fixed Income, Feb 2020)

Three podcast participants from PGIM Fixed Income discuss the outlook for fixed income markets, market segmentation in institutional fixed income, and the opportunities that this provides for active investors.

Podcast: Fixed-income investing in unprecedented times (Federated Hermes, 2020)

Andrew Jackson, Head of Fixed Income at the international business of Federated Hermes, discusses today's financial landscape with a multi-asset specialist, an economist, and a credit portfolio manager.

Oil Price Plunge Will Likely Spur High Yield Defaults, But Not Like We Saw in the 2014 Rout (PineBridge blog, Mar 2020)

What impact will the plunge in the oil price have on default expectations for high yield energy companies? PineBridge looks back to the 2014-2016 oil shock for comparisons.


Coronavirus and a potential MBS convexity whipsaw (MSCI blog, Mar 2020)

MBS investors and risk managers could face a whipsaw if rates rise materially after the coronavirus is contained (assuming that it is contained).

Coronavirus Casts Shadow Over Credit Outlook (S&P Global, Feb 2020)

S&P Global presents their February outlook for credit, which assumes that Covid-19 will be contained during March 2019.

Oil-price shock adds to corona worries (DWS AM blog, Mar 2020)

For compliance reasons, this paper is only accessible in the United Kingdom

DWS urges investors not to lose their nerve.

Recession in Europe very likely as corona and oil woes hit markets (NN IP blog, Mar 2020)

NNIP examines the likelihood of a recession in Europe.