Where could we turn to for yield² in a low rates environment? The global economy and markets have been flooded with liquidity as the US Federal Reserve and more than 40 central banks globally have cut rates at a combined 60-plus times⁵ in 2019.

While the risk of recession has eased on the back of the supportive monetary policy, this has brought down yields in most fixed income sectors.

For example, the yield for US Treasury, which is solely affected by interest rate movements, fell to 1.7% in the fourth quarter of 2019 from 2.2% in the first quarter that same year⁶. Yields for extended fixed income sectors such as US HY and emerging market debt (EMD) also declined, as the chart shows.

Yields of various fixed income sectors declined⁶

With global policy rates likely to maintain at low levels in the medium to long term, the search for yield² to help tackle negative real interest rates could intensify. But we believe it is key to focus on quality fixed income, without overstretching for yield.
 

Average annual real deposit rate of Asian markets⁷

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Conclusion

In an environment where rates are likely to stay low, we believe the search for yield is still possible but it may require moving along the risk spectrum. A flexible fixed income strategy that invests opportunistically across multiple debt sectors and markets could help capture a broader set of potential income sources while managing risk.

1. High-yield credit refers to corporate bonds which are given ratings below investment grade and are deemed to have a higher risk of default. For illustrative purposes only, exact allocation of portfolio depends on each individual’s circumstances and market conditions. Yield is not guaranteed. Positive yield does not imply positive return.
2. Yield is not guaranteed. Positive yield does not imply positive return.
3. Diversification does not guarantee investment return and does not eliminate the risk of loss.
4. For illustrative purposes only based on current market conditions, subject to change from time to time. Not all investments are suitable for all investors. Exact allocation of portfolio depends on each individual’s circumstance and market conditions. Provided for information only, not to be construed as investment recommendation. Investments involve risks, not all investment ideas are suitable for all investors.
5. Source: “Portfolio Insights – Global Fixed Income Views 1Q 2020”, J.P. Morgan Asset Management.
6. Source: Barclays, Bloomberg, FactSet, J.P. Morgan Economic Research, J.P. Morgan Asset Management. Based on Bloomberg AusBond Treasury 0+Y Index (Australia Govt Bonds), Bloomberg Barclays US Aggregate Credit – Corporate High Yield Index (US Corporate HY), Bloomberg Barclays US Aggregate Credit – Corporate Investment Grade Index (US Corporate IG), J.P. Morgan Government Bond Index – EM Global (GBI-EM) (Local EMD), J.P. Morgan Emerging Market Bond Index Global (EMBIG) (USD EMD), J.P. Morgan Asia Credit Index (JACI) (USD Asian Bonds), Bloomberg Barclays Pan European High Yield (Europe HY), J.P. Morgan Government Bond Index – Global Traded (DM Govt), J.P. Morgan Asia Credit High Yield Index (Asia HY), Bloomberg Barclays US Aggregate Government - Treasury (3-5 years) (US Treasury) and Bloomberg AusBond Bank Bill (Cash). Positive yield does not imply positive return. Past performance is not a reliable indicator of current and future results. Data reflect most recently available as of 31.12.2019.
7. Average annual real deposit rate is based on respective market’s deposit rate less year-over-year inflation. Source: FactSet, International Monetary Fund, various central banks, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Data reflect most recently available as of 31.12.2019.
8. JPMorgan Global Bond Opportunities Fund (the “Fund”) will be substantially invested in shares that correspond to the JPMorgan Funds – Global Bond Opportunities Fund, a specific portfolio within the JPMorgan Funds, which is an open-ended investment company organised under Luxembourg law as a société anonyme qualifying as a SICAV and authorised under Part I of the Luxembourg law of 17 December 2010. For details, please refer to the Product Disclosure Statement of the Fund (available from https://am.jpmorgan.com/au/en/asset-management/adv/) to understand the various risks associated with investing in the Fund and in making any investment decision.

The information provided is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Therefore, before you decide to buy any product or keep or cancel a similar product that you already hold, it is important that you read and consider the relevant JPMorgan fund Product Disclosure Statement (PDS), which is available to download on this website and make sure that the product is appropriate for you. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice. Issued by JPMorgan Asset Management (Australia) Limited ABN 55 143 832 080, AFSL No. 376919.