Finding Value in Bonds Amid Negative Rates

Jim Cielinski, Global Head of Fixed Income, provides his perspective on some of the key macroeconomic factors that are driving fixed income markets.

Key Takeaways

  • The U.S. yield curve is a good indicator of recession when accompanied by other factors such as a weak consumer, a decline in inflation, falling jobs or weak employment. However, with few of these signs  present, the curve appears idiosyncratic at this juncture.
  • Negative-yielding debt has soared to roughly $15 trillion worldwide. This is not merely a symptom of weak economic growth, but is also due to insufficient demand and excessive debt loads, as well as central banks falling short with their policy toolkit.
  • Against this backdrop, investors may question whether bonds still have a place in their portfolios. While their income component is clearly diminished, we believe bonds still play a valid role as a source of diversification, particularly in risk-off markets.