Fixed Income: Zero rates do not mean zero returns

As we enter the 2020s, a look back over the previous decade provides a key take-away for investors: a zero-rate environment does not lead to zero performance for bond investors. Last year was a clear example as bond markets delivered strong performances with almost – if not above – double-digit returns across the board. Looking back over the past five years, annualised returns across different bond markets were also positive. The Bloomberg Barclays Global Aggregate USD-Hedged index delivered 8.7% in 2019 and an average of 3.5% over the past five years.

Notably, the Eurozone government bond space delivered positive performances despite the negative ECB deposit rate having been in place since 2014, as different factors drove performances at different times, including the higher yields warranted by peripheral bonds, the safe-haven lure of core bonds and credit spread trends.

We enter the 2020s with still very low rates and with some tightness in credit markets after last year’s rally, partially reduced after the recent market sell-off induced by the coronavirus outbreak. We still believe that fixed income may offer room for active managers to deliver attractive performances on the basis of five themes:

1. GO ACTIVE to navigate the ‘LOWER FOR LONGER’ interest rates environment;
2. PLAY RELATIVE-VALUE STRATEGIES in government bonds;
3. SELECT CREDIT IDEAS, with DEMAND even stronger than record SUPPLY;
4. CAST THE NET WIDE in search of pockets of VALUE; and
5. RIDE the ‘GREEN WAVE’.

To find out more, download the full paper