MAY 7, 2019 FIXED INCOME WEBINAR Bonds, Bond Funds, …

[Pages:41]MAY 7, 2019

FIXED INCOME WEBINAR

Bonds, Bond Funds, and Bond ETFs

Beau Coash Institutional Portfolio Manager

Lee Sterne ETF Strategist

Mike Hodapp Regional Brokerage Consultant, Fixed Income

Richard Carter Vice President, Fixed Income Products

Agenda

Bond Market Context Individual Bonds Comparing Bond ETFs to Bond Mutual Funds Summary and Next Steps

2

Bond Market Context

Beau Coash

3

Fed Funds Target Rate

Market Expectations and Fed Projections

5.0%

Fed Funds Target Rate (%)

4.0%

3.0% 2.0%

Market Pricing of Short Rates in 1 Year (Constant-Maturity Eurodollar Future)

1.0%

March 2019 Federal Reserve Fed Funds Projections

Median Fed Funds Projection

Current Market Expectations As of March 31, 2019

0.0% 2013

2014

2015

Federal Funds Target Rate 2016 2017 2018

2019

2020

2021

Source: Federal Reserve and Bloomberg, as of 3/31/19. The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve Board that determines the direction of monetary policy. 4

Productivity and Labor Force Growth

REAL GDP COMPONENTS

Labor Force Productivity

4.5

4.0

3.5 Productivity Peak

3.0 (1949?1969): 3.0%

Labor Force Growth Labor Productivity Real GDP Growth

Scenarios for 4% Growth

2.3%

1.0%

1.7%

3.0%

4.0%

4.0%

20-Year AART Projections

0.5% 1.1% 1.6%

2.5

%

2.0

1.5

Labor Force Peak

1.0

(1962?1982): 2.3%

Labor Productivity Forecast: 1.1%

0.5

48% of labor force growth since 2000 comes from immigration

Labor Force Growth Forecast: 0.5%

0.0

1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017 2021 2025

Source and Forecasts: Fidelity Investments Asset Allocation Research Team (AART), as of 5/31/18.

The date range corresponding to the productivity peak in the late 1960s reflects the aftermath of World War II, when the U.S. converted from a military-industrial based economy to a consumer-based economy. The date range corresponding to the labor force peak in the early 1980s reflects the entrance of the baby boomer generation into the U.S. workforce.

5

Bond Returns vs. Interest Rates

(1940?2018)

Positive Annual Bond Return

35%

AVERAGE ANNUAL RETURN: 5.3%

10-Year Treasury Yield

Average 10-Year Treasury Yield

Negative Annual Bond Return

30%

25%

20%

15%

10%

5%

0%

-5% 1940

-0.2% -0.6%-0.3% -1.6%-0.6% -2.6%

-1.0% -3.2%

1946 1952 1958 1964 1970

1976

1982

1988

-0.8% -2.9%

1994 2000

2006

-2.0%

2012 2018

Source: Bloomberg, as of 12/31/18. Investment-grade bond returns are represented by the Bloomberg Barclays (BBgBarc) U.S. Aggregate Bond Index from January 1976 and by a composite of the IA SBBI U.S. Intermediate-Term Government Bond Index (67%) and the IA SBBI U.S. Long-Term Corporate Bond Index (33%) from January 1940 through December 1975. Shaded gray bars represent periods in which the U.S. was in a recession. Past performance is no guarantee of future results. It is not possible to invest directly in an index. All market indices are unmanaged. Not intended to represent the performance of any Fidelity fund.

6

Historical Fed Funds and Treasury Yields

Yield (%)

FED FUNDS TARGET RATE VS. HISTORICAL 10 YEAR TREASURY YIELD

Fed Funds / 10 Year Treasury Spread

10 Year Treasury Yield

10

8

6

4

2

0

-2 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Source: Bloomberg as of 3/31/19. Shaded gray bars represent periods in which the U.S. was in a recession. Past performance is no guarantee of future results. 7

Corporate Bond Market Remains Healthy

($Trillions)

OUTSTANDING IG CORPORATE BONDS*

10

Total IG Corps

IG Industrials Corps

IG Industrials Corps Cash

5

0 11/08

11/10

11/12

11/14

11/16

11/18

(%)

PERCENTAGE IG CORPORATE BONDS RATED BBB

55

% BBB

50

45

40

35

30 11/08

11/10

11/12

11/14

11/16

11/18

IG Corporate Growth

IG CORPORATE GROWTH**

SEVEN NAMES DROVE INDUSTRIAL BBB GROWTH*

6x

5x

25%

5x

20%

4x

3x

2x

2x

1x

0x

3x

15%

10%

5%

0%

IG Corporates BBB Financials BBB Industrials

ATA&TT&T Verizon ICnVBSev CGGVMES GE FGGGoMMrEd FFoorrdd

Downgraded to BBB

Upgraded to BBB

* Investment Grade (IG) Corporate Bonds

* *From 6/29/08 through 11/30/18.

8

Sources: (Top) Barclays as of 11/30/18. Non-financials cash source is FactSet as of 6/30/18. (Bottom): Fidelity and Barclays as of 11/30/18.

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download