“The chart below shows the difference between estimated Global bond demand and supply. This mismatch aids in returns for fixed income, as more investors look to invest (creating more demand) with less supply to satisfy these needs. The left chart breaks down the sources of demand, showing that monetary easing has created a large portion of this demand as developed market central banks continue to purchase bonds to stimulate their economies.
The next slide highlights the growth in the fixed income markets and provides some data points to highlight some of the diversification benefits of different markets.
The chart below shows some basic metrics for the different areas of the fixed income market (yields, returns, etc), as well as the sensitivity of each sector to movements in interest rates. Bond prices fall when interest rates rise, but different types of bonds will rise/fall in price by different amounts.
The next slide looks at high yield bonds. The top chart shows the spread between the yield of the JPM Domestic High Yield Index and the yield on comparable maturity Treasury bonds. The bottom left chart shows the shrinking dealer inventories and issues of high yield debt and the bottom right chart shows the annual flows into high yield and leveraged loan funds.
The latest slide looks at the breakdown of emerging market debt indices in terms of credit ratings and broke out into three different indices: local currency denominated sovereigns, USD denominated sovereigns and corporate debt. The bottom chart shows the difference in real policy rates between emerging markets and developed markets and the right side of the page shows the sovereign spread over treasuries for several emerging market countries”.
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