Post on 09-Apr-2019
2
3
3
4
55
U.S. and Australian bank funding costsTerm deposit and policy rate1-year term deposit, $10,000
Term deposit held with banksAUD billions
Source: FactSet, ICAP Plc, Reserve Bank of Australia, J.P. Morgan Asset Management.
*LIBOR is the London Interbank Offer Rate, BBSW is the Bank Bill Swap Rate and they represent the rate at which banks lend to each other. The OIS is the overnight
banks swap and is the rate at which central banks offer cash to the market. The spread between the bank funding rate and the OIS indicates how difficult it is for
banks’ to acquire funding. Past performance is not a reliable indicator of current and future results.
Guide to the Markets – Australia. Data as of 31 December 2018.
Term deposit
Cash rate
30 Nov 2018:
2.20%31 Dec 2018:
1.50%
Oct 2018:
$642bn
3-month LIBOR and BBSW spread over OIS*, basis points
Australia (BBSW)
U.S. (LIBOR)
$0
$100
$200
$300
$400
$500
$600
$700
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
0
10
20
30
40
50
60
70
Sep '15 Mar '16 Sep '16 Mar '17 Sep '17 Mar '18 Sep '18
5
61
Impact of a 1% rise in interest ratesAssumes a parallel shift in the yield curve and steady spreads
Source: Bloomberg Barclays, BofA/Merrill Lynch, FactSet, J.P. Morgan Asset Management. (Right) Fixed income sensitivity sectors shown are provided by Barclays
and are represented by: Treasury Australia; Bloomberg AusBond Treasury indices; Investment-grade credit: Barclays Global Aggregate – Corporates; High yield:
Barclays Global High Yield; EMD USD sovereign: Barclays Emerging Markets – Sovereign; EMD USD corporate: Barclays Emerging Markets – Corporate; EMD LC
sovereign: Barclays Emerging Markets Local Currency Government; Floating rate: Bloomberg Barclays U.S. Floating Rates Notes; MBS: Bloomberg Barclays U.S.
Aggregate Securitized – MBS. (Left) Global HY: BofAML Global High Yield; EMD ($): J.P Morgan EMBI Global. For illustrative purposes only. Change in bond price is
calculated using both duration and convexity. Past performance is not a reliable indicator of current and future results.
Guide to the Markets – Australia. Data as of 31 December 2018.
Yield Return
Aggregates Duration 31 Dec ’18 31 Dec ‘17 2018 4Q ‘18
Global 7.0 Yrs 2.03% 1.66% -1.20% 1.20%
Australia 5.2 2.36 2.53 4.54 2.24
U.S. 5.9 3.28 2.71 0.01 1.64
Japan 9.3 0.18 0.20 0.82 1.20
Germany 6.3 0.62 0.46 1.56 1.07
Sector
Floating rate 0.0 Yrs 4.26% 2.05% 0.92% -1.12%
MBS 4.7 3.39 2.91 0.99 2.08
Aus IG 7.1 3.56 3.63 5.34 2.75
Global IG 6.3 3.37 2.55 -3.57 -0.81
Global HY 4.3 7.56 6.29 -2.40 -3.48
EMD ($) 6.7 7.06 5.54 -4.61 -1.19
EMD (LCL) 5.1 6.46 6.14 3.18 2.93
EMD Corp 5.3 6.32 5.07 -1.65 -0.04
Price return
Total return
-2.3%
-1.2%
2.0%
-0.6%
3.1%
-3.1%
4.1%
-9.6%
-3.3%
0.1%
-4.2%
-5.7%
-6.1%
-4.4%
-7.2%
-4.6%
-6.4%
-0.1%
-12.1%
-5.4%
-1.8%
-6.4%
-15% -12% -9% -6% -3% 0% 3% 6%
MBS
EMD LC sovereign
EMD USD corporate
EMD USD sovereign
High yield
Investment grade credit
Floating rate
10+ years
5-7 years
1-3 years
Treasury: Australia
6
54
Number of policy rate changes by central banksCentral bank key policy ratesTarget rates
Source: J.P. Morgan Asset Management; (Left) Bank of Japan, European Central Bank, FactSet, Reserve Bank of Australia, U.S. Federal Reserve; (Right) Bloomberg
Finance L.P.
*Covers the 10 largest developed market central banks by assets.
Guide to the Markets – Australia. Data as of 31 December 2018.
Policy rate Deposit rate
RBA 1.50% 1.50%
U.S. Fed 2.50% 2.40%
ECB 0.00% -0.40%
BoJ -0.10% -0.10%
Developed market central banks easing or tightening policy*
Cuts
Hikes
0
5
10
15
20
25
30
'09 '10 '11 '12 '13 '14 '15 '16 '17 '18
7
62
Global investment-grade bondsOption-adjusted spreads, basis points
U.S. investment-grade leverage measuresLeverage* and interest coverage** ratio
Credit quality and durationU.S. aggregate investment grade bond index
Source: J.P. Morgan Asset Management; (Left and bottom right) Bloomberg Barclays, FactSet; (Left) BofA Merrill Lynch; (Top right) J.P. Morgan Securities.
*Leverage is net debt to earnings before interest, tax, depreciation and amortisation (EBITDA). **Interest coverage is EBITDA over interest expense. Past performance
is not a reliable indicator of current and future results.
Guide to the Markets – Australia. Data as of 31 December 2018.
Interest coverageLeverageAverage 31 Dec 18
U.S. 159bps 153bps
Europe 130 152
Australia 129 122
Duration (years) % of BBB bonds in index
10%
20%
30%
40%
50%
60%
5
6
7
8
'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
6x
8x
10x
12x
14x
16x
0.8x
1.2x
1.6x
2.0x
2.4x
2.8x
3.2x
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18
8
63
0bps
500bps
1000bps
1500bps
2000bps
0%
5%
10%
15%
20%
'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
U.S. high yield spread and default rate
Earnings growthEBITDA, year-over-year change
U.S. high yield leverage measuresNet leverage* and interest coverage ratio**
Source: J.P. Morgan Economic Research, J.P. Morgan Asset Management.
Default rates are defined as the par value percentage of the total market trading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or
missed interest payments. Spreads indicated are benchmark yield to worst less comparable maturity Treasury yields. Yield to worst is defined as the lowest potential
yield that can be received on a bond without the issue actually defaulting and reflects the possibility of the bond being called at an unfavourable time for the holder.
*Net leverage is net debt divided by adjusted earnings before interest, tax, depreciation and amortisation (EBITDA). **Interest coverage ratio is EBITDA over interest
expense. Past performance is not a reliable indicator of current and future results.
Guide to the Markets – Australia. Data as of 31 December 2018.
Asset classAverage since
1986Latest
HY spread (RHS) 570bps 567bps
HY default (LHS) 3.8% 1.8%
Net leverage
Interest coverage
ratio
Recession
-10%
-5%
0%
5%
10%
15%
20%
'11 '12 '13 '14 '15 '16 '17 '183.0x
3.5x
4.0x
4.5x
5.0x
'11 '12 '13 '14 '15 '16 '17
9
53
2013 2014 2015 2016 2017 2018 4Q18 Ten-yr Ann.
25.3%
Global HY
7.1%
16.0%
EM Debt
6.2%
14.5%
EM Debt
1.8%
15.3%
Global HY
15.9%
5.1%
Aus IG
5.1%
12.1%
US Treas.
0.9%
5.4%
US Treas.
2.6%
10.9%
Global HY
11.5%
16.4%
Global IG
0.3%
14.8%
US Treas.
5.1%
13.4%
US Treas.
0.8%
10.1%
EM Debt
9.6%
3.5%
Aus Gov
3.5%
9.7%
US TIPS
-1.3%
2.8%
Aus Gov
2.8%
7.2%
EM Debt
7.3%
12.9%
US Treas.
-2.7%
13.3%
US TIPS
3.6%
10.9%
US TIPS
-1.4%
5.7%
Portfolio
5.6%
2.0%
Global HY
7.6%
7.4%
Global HY
-2.4%
2.3%
US TIPS
-0.4%
6.0%
Aus IG
6.0%
9.3%
Portfolio
-0.3%
12.8%
Global IG
3.1%
8.5%
Global IG
-3.6%
5.2%
US TIPS
4.7%
1.0%
Global IG
9.1%
7.1%
Global IG
-3.6%
2.2%
Portfolio
0.6%
5.7%
Portfolio
5.8%
6.4%
EM Debt
-8.3%
11.6%
Portfolio
6.2%
7.8%
Global HY
-2.1%
4.8%
Global IG
4.3%
0.8%
Portfolio
5.2%
7.0%
Portfolio
0.6%
2.1%
EM Debt
-0.7%
4.7%
Global IG
4.8%
6.1%
US TIPS
-8.6%
10.3%
Aus Gov
10.3%
7.6%
Portfolio
0.5%
3.8%
Aus IG
3.8%
0.3%
EM Debt
8.3%
5.2%
EM Debt
-5.3%
1.9%
Global IG
-0.8%
4.5%
Aus Gov
4.5%
4.3%
Aus IG
4.3%
9.2%
Global HY
2.5%
3.0%
Aus IG
3.0%
2.5%
Aus Gov
2.5%
-4.6%
US TIPS
3.0%
5.1%
Aus Gov
5.1%
1.5%
Aus IG
1.5%
3.5%
US TIPS
3.6%
0.3%
Aus Gov
0.3%
8.1%
Aus IG
8.1%
2.3%
Aus Gov
2.3%
1.5%
US Treas.
1.0%
-5.3%
US Treas.
2.3%
3.9%
Aus IG
3.9%
-1.1%
Global HY
-3.5%
1.9%
US Treas.
2.1%
Fixed income sector returns
Source: Barclays, Bloomberg Finance L.P., BoA/ML, FactSet, J.P. Morgan Asset Management.
Aus Gov: AusBond Treasury (0+Y); U.S. Treas.: Barclays U.S. Aggregate Government – Treasury; Global IG: Barclays Global Aggregate – Corporate – Investment
Grade; Aus IG: Bloomberg AusBond Credit (0+Y); Global HY: BoA/ML Global High Yield; EM Debt: J.P. Morgan EMBI+; U.S. TIPS: Bloomberg Barclays U.S. Treasury
Inflation Protected (TIPS). Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 25% Aus Gov, 15% Aus IG, 10% Global
IG, 15% Global HY; 10% EM Debt, 15% U.S. Treas., 10% U.S. TIPS. Correlation to U.S. Treasuries and Australian Treasuries are to the Barclays U.S. Treasury (10Y)
and Bloomberg AusBond Treasury (7-10Y), respectively, for the past 10 years. Past performance is not a reliable indicator of current and future results.
Guide to the Markets – Australia. Data as of 31 December 2018.
EM Debt
Australia IG
Portfolio
Australia Gov
U.S. Treasuries
U.S. TIPS
Global HY
Global IG
Correl to Treasuries
Yield Duration U.S. Australia
7.56% 4.3 Yrs -0.28 -0.30
7.20 7.6 0.24 0.08
3.67
3.38 6.3 0.19 -0.04
3.04 3.6 0.42 0.74
2.61 6.1 0.99 0.72
2.15 6.3 0.71 0.99
0.98 5.3 0.62 0.40
AUD
LCL
10
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