Fixed Income 3.0: How to Approach Bond Portfolios in a Post-Post- Crisis World

Fixed Income 3.0: How to Approach Bond Portfolios in a Post-Post- Crisis World

by Mike Gitlin, Head of Fixed Income, Capital Group,
David Hoag, Portfolio Manager, Capital Group,
Margaret Steinbach, Investment Specialist, Capital Group

Highlights

• Contemporary fixed income markets can be divided into three periods: the crisis period from 2007–2009, the post-crisis period ending in late 2014, and the present post-post-crisis period.

• Recent ineffectiveness of monetary stimulus paired with global interconnectedness makes prolonged low interest rates and low inflation globally more likely in this post-post-crisis period.

• The current period can be characterized by weaker economic growth and lower asset price returns than markets have seen historically, but with more volatility.

• Bond investors in this period should keep the following considerations in mind: avoid bond strategies with “scope creep”; expect lower taxequivalent portfolio yields, likely in a range of 3% to 4%; and aim for liquid investments.

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II FI Summer 2016