Please read production notes throughout, ETFs€¦ · Yield Curve The yield curve steepened in...
Transcript of Please read production notes throughout, ETFs€¦ · Yield Curve The yield curve steepened in...
2760984.1.1.AM.RTL
SPDR®
ETFs
Fixed Income
Chart Pack
Please see Appendix A for more information on investment terms used in this Chart Pack.
Charts for the Latest Bond Market Insights and Analytics
Q4 2019
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1
Source: Bloomberg Finance, L.P. As of September 30, 2019. Past performance is not a guarantee of future results. T-bills - Bloomberg Barclays U.S. Tr Bills: 1-3 Months Index,
US Aggregate - Bloomberg Barclays US Agg Index, US Treasury - Bloomberg Barclays US Treasury Index, US TIPS - Bloomberg Barclays Global Inflation-Linked: U.S. TIPS Index, US
MBS - Bloomberg Barclays US MBS Index, US IG Corporates - Bloomberg Barclays US Corporate Index, 1-10 YR IG Corporates - Bloomberg Barclays Intermediate Corporate Index,
10 Yr+ IG Corporates - Bloomberg Barclays Long U.S. Corporate Index, US High Yield - Bloomberg Barclays VLI: High Yield Index, Leveraged Loans - S&P/LSTA Leveraged Loan Index,
Developed Ex-US IG Corporates - Bloomberg Barclays Global Agg Corporate ex USD $1B+ Index, Developed Ex-US Sovereign Bonds - Bloomberg Barclays Global Treasury ex-U.S.
Index, EM Hard Currency Sovereign Bonds - J.P. Morgan EMBI Global Core Index, EM Local Sovereign Bonds - Bloomberg Barclays EM Local Currency Govt Diversified Index.
2760984.1.1.AM.RTL 2
Bond Market Performance With interest rates rising modestly, rate sensitive sectors posted losses in
September. Below investment grade credit gained, however.
Bond Sector Performance
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0.2%
-0.5% -0.8% -1.4%
0.1%
-0.7% -0.2% -1.4%
0.3% 0.5%
-1.5% -1.2% -0.6%
0.6%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
-5%
0%
5%
10%
15%
20%
25%
T-Bills USAggregate
USTreasury
US TIPS US MBS US IGCorporates
1-10 Yr IGCorporates
10 Yr+ IGCorporates
US HighYield
LeveragedLoans
DevelopedEx-US IG
Corporates
DevelopedEx-US
SovreignBonds
EM HardCurrencySovereign
Bonds
EM LocalCurrencySovereign
Bonds
1 Y
ea
r Ma
x D
raw
do
wn
(%)
Re
turn
s (
%)
September YTD 1 Year 1 Year Max Drawdown
Long-term IG Corporates have had the best returns year to date and over the
past year, but it has come with drawdowns similar to US High Yield
Source: Bloomberg Finance, L.P. As of September 30, 2019. Past performance is not a guarantee of future results.
2760984.1.1.AM.RTL 3
Yield Curve The yield curve steepened in September, as the geopolitical unrest that pushed
yields to three year lows in August slightly abated and the Fed cut short term rates.
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US Treasury Curve US Treasury Active:
2.11 2.20 2.37
2.57
2.82 2.88 2.95 3.02 3.06 3.21
2.09 1.98
1.87 1.77
1.51 1.43 1.39 1.45 1.50
1.96
1.87 1.82 1.82 1.76 1.62 1.56 1.54 1.61 1.67
2.11
1.0
1.5
2.0
2.5
3.0
3.5
Yie
ld (
%)
9/30/2018 8/30/2019 9/30/2019
-24 -38
-55
-81
-120 -132
-141 -141 -140
-56 -67
-78 -73 -84
-95 -104 -107
-135
-22 -17 -5 -1
12 13 16 16 17
-150
-100
-50
0
50
1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y
Ch
an
ge
in
Bp
s
1 Year YTD September
-2%
-1%
0%
1%
2%
3%
4%
5%
Adrian Crump & Moench 10 Year Treasury Term Premium
US 10 Year Yield
US 2-Year Yield
US 10-Year and 2-Year Yield Spreads
Negative growth prospects have anchored term
premiums near historical lows this year
Source: Bloomberg Finance, L.P. As of September 30, 2019. Past performance is not a guarantee of future results. The term premium is the excess yield that investors require to
commit to holding a long-term bond instead of a series of shorter-term bonds. The copper-to-gold ratio indicates the potential of economic growth as gold is more of a defensive asset
while copper is more cyclical.
2760984.1.1.AM.RTL 4
Yield Curve (continued) While the yield curve steepened in September, it still remains flat as the long end
remains constrained by slow growth dynamics.
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US Treasury Curve (10-and-2 Year Spreads) and Term Premium
3
4
5
6
1.3%
2.0%
2.7%
3.4%
Ra
tio
US 10 Year Yield (%) Copper to Gold Ratio
US 10 Year Yield versus the Copper to Gold Ratio
Source: Bloomberg Finance, L.P. As of September 30, 2019. Past performance is not a guarantee of future results.
2760984.1.1.AM.RTL 5
Low Rates & Rate Uncertainty Global rates are low and both the market as well as policy makers lack consensus
on the path for short term US rates for the remainder of 2019.
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Market Implied Probability of Fed Actions by the end of 2019 Bloomberg Barclays Global Agg Index Allocation by Yield (%)
0
20
40
60
Jan-19 Mar-19 May-19 Jul-19 Sep-19
%
Two Cuts One Cut
0%
20%
40%
60%
80%
Sep-12 Dec-13 Mar-15 Jun-16 Sep-17 Dec-18
26.0
17.1
22.7
24.8
7.0
1.4 0.2 0.5 0.3 0.0 0.0
<0 0-1 1-2 2-3 3-4 4-5 5-6 6-7 7-8 8-9 9-10
Yield to Worst (%)
Yield By Market Cap Weight
% of Fed Members with Different 2019 Policy Rate Projections
than the Majority
26% of global bonds have a
negative yield, and over 60%
yield less the S&P 500
-5
-6
-20
-7
-35
1
-38
-46
-153
-128
-159
-45
IG Corporate
US BBB Rated
Broad High Yield
US High Yield BB Rated
US High Yield B Rated
US High Yield CCC & Lower
YTD September
Source: Bloomberg Finance, L.P. BofA Merrill Lynch, As of September 30, 2019. US High Yield CCC & Lower = BofA ML US High Yield CCC & Lower Rated Index. US High Yield B Rated = BofAML US High Yield B Rated Index. BBB Rated = BofA ML US Investment Grade BBB Rated Index. Broad high yield = Bloomberg Barclays US Corporate High Yield Index. IG Corporate = Bloomberg Barclays US Corporate Index. Past performance is not a guarantee of future results.
2760984.1.1.AM.RTL 6
Credit Trends The dovish tone among global central banks drove risk-on sentiment in credit
markets, with high yield spreads tightening further below long-term averages.
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Credit Spreads Credit Spread Changes in Basis Points
Credit Spread Current vs. 20-Yr Averages
1059
450
239
373
162
115
1175
568
383
550
163
157
US High Yield CCC & Lower
US High Yield B Rated
US High Yield BB Rated
Broad High Yield
US BBB Rated
IG Corporate
20-Yr Avg
As of 9/30/2019
0%
5%
10%
15%
20%
Bloomberg Barclays US Corporate High Yield Index
Bloomberg Barclays US Corporate Index
Bloomberg Barclays High Yield Energy Index
HY spreads are 32%
below their
20-year averages
Given the Middle East tensions impact on
oil, HY energy spreads widened recently
Source: Bloomberg Finance, L.P. As of September 30, 2019. Past performance is not a guarantee of future results. Senior loans: S&P Leveraged Loan 100 Index; High Yield Bonds:
Bloomberg Barclays U.S. Corporate High Yield Index.
2760984.1.1.AM.RTL 7
Credit Trends (Continued) Due to the sizeable spread compression for fixed rate high yield, it now trades at the
most negatively convex level ever. Loans, however, yield more than fixed rate HY.
High Yield Bond Convexity
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-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
Effective Convexity
1.85
1.95
2.05
2.15
2.25
2.35
2.45
2.55
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
Fe
d F
un
ds U
pp
er B
ou
nd
(%)
Yie
lds (
%)
High Yield - Yield to Worst (%)Loans - Yield to Maturity (%)Fed Funds Upper Bound
Yields on High Yield versus Loans
Last time HY was this convex, the
market sold off
-2
0
2
4
6
8
10
12
14
Year to Date Q3 September
%
Curve Change Curve Carry Spread Return
Source: Bloomberg Finance, L.P. As of September 30, 2019. Past performance is not a guarantee of future results. US IG Corporates - Bloomberg Barclays US Corporate Index,
US High Yield - Bloomberg Barclays VLI: High Yield Index.
2760984.1.1.AM.RTL 8
Credit Attribution High yield credit registered a gain in September as the positive spread return
offset the negative impact from the curve change. IG, however, was not as lucky.
US High Yield Attribution
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Spread tightening has driven 60% of
the return for HY in 2019
-4
-2
0
2
4
6
8
10
12
14
Year to Date Q3 September
%
Curve Change Curve Carry Spread Return
US IG Corporate Attribution
13.19
3.05
-0.64
12.21
1.25 0.27
The change in the curve has driven 60%
of the return for IG credit in 2019
Source: Bloomberg Finance, L.P. As of September 30, 2019. Past performance is not a guarantee of future results.
2760984.1.1.AM.RTL 9
Convertibles Attribution As a result of increased issuance after high levels of equity sensitivity in 2018,
convertibles now have more bond-like characteristics — despite a 13% return in 2019.
US Convertibles Liquid Bond Index – Average Stock Delta
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US Convertibles Liquid Bond Index – Premium to Parity
15
25
35
45
55
65
75
Jul-09 Sep-11 Nov-13 Jan-16 Mar-18
% Prem. Median Bottom Quintile Top Quintile
Given this profile, and US equities near all-time highs,
converts may be a low volatility way to buy the rally
45
50
55
60
65
70
75
80
85
Jul-09 Sep-11 Nov-13 Jan-16 Mar-18
Delta Median Bottom Quintile Top Quintile
A low delta and high premium indicates convertible
securities are more bond-like than stock-like
-10%
-7%
-4%
-1%
2%
5%
-10% -5% 0% 5%
EM
Cu
rre
ncy M
on
thly
R
etu
rns
EM Local Sovreign Debt Monthly Returns
Source: Bloomberg Finance, L.P. As of September 30, 2019
EM Local – Bloomberg Barclays EM Local Sovereign Bond Index.
Past performance is not a guarantee of future results.
2760984.1.1.AM.RTL 10
EM Debt Attribution A softening of trade tensions and a Federal Reserve rate cut boosted emerging
market (“EM”) currencies in September, benefiting EM local debt returns.
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EM Local Sovereign Debt Attribution
-8
-6
-4
-2
0
2
4
6
8
10
12
Year to Date Q3 September
%
Curve Change Curve Carry
Spread Return Currency Return
EM Local Sovereign Debt Return Correlation to EM Currencies (2009–2019)
0%
2%
4%
6%
8%
10%
12%
14%
0% 5% 10% 15% 20%
EM
Cu
rre
ncy 1
Ye
ar
Sta
nd
ard
De
via
tio
n R
etu
rns
EM Local Sovereign 1 Year Standard Deviation of Returns
80% of the Sept. return was from
strengthening EM currencies
-0.55
5.24
Correlation: 94%
Correlation: 90%
0.50
$14
-$15
-$10
-$5
$0
$5
$10
$15
2009 2011 2013 2015 2017 2019
$104
$112
$0
$20
$40
$60
$80
$100
$120
2006 2008 2010 2012 2014 2016 2018
Source: Bloomberg Finance, L.P. As of September 30, 2019. Past performance is not a guarantee of future results.
2760984.1.1.AM.RTL 11
ETF Fund Flow Trends Fixed Income ETF flows are 8% ahead of 2017’s record setting pace, and one
year after posting their first year of outflows HY ETFs have a record inflow total.
Yearly US-Listed FI ETF Fund Flows Through September ($ Billions)
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High Yield Yearly Fund Flows ($ Billions)
Investors search for yield has led to outsized HY ETF
fund flows, pushing AUM to a record high as well
Source: Bloomberg Finance, L.P. As of September 30, 2019. Past performance is not a guarantee of future results.
2760984.1.1.AM.RTL 12
ETF Fund Flow Trends (continued) With rates falling, the demand for higher levels of income has led to renewed
interest in preferred securities.
Preferred ETFs Net Flows vs. Real 10 Year Yields
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Ultra-Short/Short Term Treasury Minus Interm./Long Term Flows
-1.0
-0.5
0.0
0.5
1.0
1.5
-$1.5
-$1.0
-$0.5
$0.0
$0.5
$1.0
$1.5
Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19
Yie
ld (%
)
Ne
t F
low
s (
$)
Preferreds Real 10 Year Yield
($3.2)
($0.2)
$2.6
($0.8)
($1.3)
($5.5) -$6
-$5
-$4
-$3
-$2
-$1
$0
$1
$2
$3
$4
Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19
More
Flo
ws I
nto
Short
Term
M
ore
Flo
ws I
nto
Long T
erm
With the yield curve flattening, flows have
skewed more towards the long end of the curve
Source: Bloomberg Finance, L.P. As of September 30, 2019. Past performance is not a guarantee of future results. Past performance is not a guarantee of future results. Index returns
are unmanaged and do not reflect the deduction of any fees or expenses High Yield Bonds: Bloomberg Barclays U.S. Corporate High Yield Index; Emerging Market Bonds: Bloomberg
Barclays Emerging Markets Hard Currency Aggregate Index; High Dividend Large Cap Equities: S&P 500 High Dividend Index; Crossover High Yield Bonds: ICE BofAML Crossover
Corporate Bond Index. Correlation analysis from 09/30/2009 to 09/30/2019 based on monthly frequency of returns. Past performance is not a guarantee of future results.
2760984.1.1.AM.RTL 13
Bond Market Outlook Striking a balance between yield and duration is a daunting task within the core of
portfolios with investment grade global fixed income sectors.
Bond Market Yield and Duration Profiles
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5.7% 5.5% 5.0%
4.7%
3.8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0%
1%
2%
3%
4%
5%
6%
High YieldBonds
PreferredSecurities
EmergingMarketBonds
HighDividend
Large CapEquities
CrossoverHigh Yield
Bonds
10
Ye
ar C
orre
latio
n (%
)
Yie
ld (
%)
Yield 10 Year Correlation to S&P 500 Index
Yield and Equity Sensitivity for High Income Opportunities
2.5 2.3 2.9
1.7
3.6
0.4
4.3
5.8
7.8
6.6
14.5
5.8
0.59
0.39 0.37
0.26 0.25
0.07
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0
2
4
6
8
10
12
14
16
BloombergBarclays
IntermediateCorporate
Index
BloombergBarclays USAggregateBond Index
BloombergBarclays USCorporate
Bond Index
BloombergBarclays US
TreasuryIndex
BloombergBarclays
Long U.S.Corporate
Index
BloombergBarclays
Global AggCorporate exUSD Index
Yie
ld P
er U
nit o
f Du
ratio
n
Yie
ld (
%)
Yield to Worst (%) Option Adjusted Duration (Years)
Yield Per Unit of Duration
Basis Point: One hundredth of one percent, or 0.01%.
The Bloomberg Barclays US Treasury Bill Index tracks the market for treasury bills
issued by the US government. US Treasury bills are issued in fixed maturity terms of 4-,
13-, 26- and 52-weeks. The US Treasury Bill Index is a component of the US Short
Treasury Index along with US Treasury notes and bonds that have fallen below one year
to maturity.
The Bloomberg Barclays Global Aggregate Index is a measure of global investment
grade debt from 24 local currency markets. This multi- currency benchmark includes
treasury, government-related, corporate and securitized fixed-rate bonds from both
developed and emerging markets issuers.
The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index tracks agency
mortgage pass-through securities (no longer incorporates hybrid ARM) guaranteed by
Ginnie Mae (GNMA), Mae (FNMA), and Freddie Mac (FHLMC). The index is constructed
by grouping individual TBA- deliverable MBS pools into aggregates or generics based on
program, coupon and vintage.
Bloomberg Barclays US Aggregate Index: A benchmark that provides a measure of the
performance of the US dollar denominated investment grade bond market, which includes
investment grade government bonds, investment grade corporate bonds, mortgage pass
through securities, commercial mortgage backed securities and asset backed securities
that are publicly for sale in the US.
Bloomberg Barclays US Corporate 1–3 Year Index: The Index includes publicly issued
US dollar denominated corporate issues that have a remaining maturity of greater than or
equal to 1 year and less than 3 years, are rated investment grade.
Bloomberg Barclays US Corporate Bond Index: The Bloomberg Barclays US Corporate
Bond Index measures the investment grade, US dollar-denominated, fixed-rate, taxable
corporate and government related bond markets. It is composed of the US Corporate
Index and a non-corporate component that includes foreign agencies, sovereigns,
supranationals and local authorities.
The Bloomberg Barclays Emerging Markets Local Currency Liquid Government
Index is a country-constrained, more liquid version of the flagship Emerging Markets Local
Currency Government Index, which is designed to provide a broad measure of the
performance of local currency Emerging Markets (EM)
Bloomberg US Treasury Index: The Bloomberg US Treasury Bond Index is a rules-
based, market-value weighted index engineered to measure the performance and
characteristics of fixed rate coupon US Treasuries which have a maturity greater
than 12 months.
The Bloomberg Barclays US Convertible Liquid Bond Index is designed to represent
the market of U.S. convertible securities, such as convertible bonds.
Credit Spread: A credit spread is the difference in yield between a US Treasury bond
and a debt security with the same maturity but of lesser quality.
Parity The value of the underlying equity if the convertible is converted. It is equal
to the current stock price multiplied by the number of shares for which the bond may
be exchanged.
S&P/LSTA US Leveraged Loan 100 Index: The S&P/LSTA US Leveraged Loan 100
Index is designed to reflect the largest facilities in the leveraged loan market.
Delta: The sensitivity of one asset to an underlying deriviative
Spread Changes: Changes in the spread between Treasury securities and non-Treasury
securities that are identical in all respects except for quality rating.
Parity The value of the underlying equity if the convertible is converted. It is equal to
the current stock price multiplied by the number of shares for which the bond may
be exchanged.
Standard Deviation: Measures the historical dispersion of a security, fund or index
around an average. Investors use standard deviation to measure expected risk or
volatility, and a higher standard deviation means the security has tended to show higher
volatility or price swings in the past.
Yield: The income produced by an investment, typically calculated as the interest received
annually divided by the investment’s price.
Yield Curve: A graph or line that plots the interest rates or yields of bonds with similar
credit quality but different durations, typically from shortest to longest duration. When the
yield curve is said to be flat, it means the difference in yields between bonds with shorter
and longer durations is relatively narrow. When the yield curve is said to be steepened, it
means the difference in yields between short term and long term bonds increases.
Yield to Worst: Yield to worst is an estimate of the lowest yield that you can expect to
earn from a bond when holding to maturity, absent a default. It is a measure that is used in
place of yield to maturity with callable bonds.
Appendix A
Definitions
14 2760984.1.1.AM.RTL
Alphabetically ordered.
The views expressed in this material are the views of SPDR Americas Research Team
and are subject to change based on market and other conditions. This document contains
certain statements that may be deemed forward-looking statements. Please note that any
such statements are not guarantees of any future performance and actual results or
developments may differ materially from those projected.
The information provided does not constitute investment advice and it should not be relied
on as such. It should not be considered a solicitation to buy or an offer to sell a security.
It does not take into account any investor’s particular investment objectives, strategies, tax
status or investment horizon. You should consult your tax and financial advisor.
All material has been obtained from sources believed to be reliable. There is no
representation or warranty as to the accuracy of the information and State Street shall
have no liability for decisions based on such information.
All the index performance results referred to are provided exclusively for comparison
purposes only. It should not be assumed that they represent the performance of any
particular investment.
Bonds generally present less short-term risk and volatility than stocks, but contain interest
rate risk (as interest rates rise, bond prices usually fall); issuer default risk; issuer credit
risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term
securities. Any fixed income security sold or redeemed prior to maturity may be subject to
a substantial gain or loss.
The values of debt securities may decrease as a result of many factors, including, by
way of example, general market fluctuations; increases in interest rates; actual or
perceived inability or unwillingness of issuers, guarantors or liquidity providers to make
scheduled principal or interest payments; illiquidity in debt securities markets; and
prepayments of principal, which often must be reinvested in obligations paying interest at
lower rates.
Equity securities may fluctuate in value in response to the activities of individual
companies and general market and economic conditions.
Investments in small-sized companies may involve greater risks than in those of larger,
better known companies.
Investments in mid-sized companies may involve greater risks than in those of larger,
better known companies, but may be less volatile than investments in smaller companies.
Companies with large market capitalizations go in and out of favor based on market and
economic conditions. Larger companies tend to be less volatile than companies with
smaller market capitalizations. In exchange for this potentially lower risk, the value of the
security may not rise as much as companies with smaller market capitalizations.
Value stocks can perform differently from the market as a whole. They can remain
undervalued by the market for long periods of time.
Foreign investments involve greater risks than US investments, including political and
economic risks and the risk of currency fluctuations, all of which may be magnified in
emerging markets.
Because of their narrow focus, sector funds tend to be more volatile.
Commodities investing entail significant risk as commodity prices can be extremely
volatile due to wide range of factors Bond funds contain interest rate risk (as interest rates
rise bond prices usually fall); the risk of issuer default; issuer credit risk; liquidity risk; and
inflation risk.
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relating to the accuracy, completeness or timeliness of the data and have no liability for
damages of any kind relating to the use of such data.
Standard & Poor’s, S&P and SPDR are registered trademarks of Standard & Poor/s
Financial Services LLC (S&P); Dow Jones is a registered trademark of Dow Jones
Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use
by S&P Dow Jones Indices LLC (SPDJI) and sublicensed for certain purposes by State
Street Corporation. State Street Corporation’s financial products are not sponsored,
endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and
third party licensors and none of such parties make any representation regarding the
advisability of investing in such product(s) nor do they have any liability in relation thereto,
including for any errors, omissions, or interruptions of any index.
Distributor: State Street Global Advisors Funds Distributors LLC, member FINRA, SIPC.
Before investing, consider the funds’ investment objectives, risks, charges and
expenses. To obtain a prospectus or summary prospectus which contains this and
other information, call 1-866-787-2257 or visit spdrs.com. Read it carefully.
State Street Global Advisors, One Iron Street, Boston, MA 02210.
Tracking Code: 2760984.1.1.AM.RTL
Expiration Date: September 30, 2020
Not FDIC Insured — No Bank Guarantee — May Lose Value.
Appendix B
Important Disclosures
15 2760984.1.1.AM.RTL