Central bank policies have pushed interest rates lower globally, with over $13 trillion of debt outside the US carrying negative yields. The Federal Reserve is expected to cut rates further in 2019. With yields near historic lows, investors continue searching for safety, income, and higher returns, which has led some to take on more risk. Remaining flexible may allow capturing unique returns in areas like private credit.

1. Market Perspectives – September 2019
Experience Insight Impact
Overview: Market participants remain focused on interest rates as wild gyrations continue to
occur. While we have discussed the current rate environment multiple times over the past year,
it is worth revisiting where things stand considering the significant amount of global debt
currently sitting with negative yields, as well as the recent dramatic volatility.
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2. 10-Year Yields
Experience Insight Impact 2
As of September 16, 2019, the 10-year U.S. Treasury is yielding 1.83%. In general, yields around the
world are significantly lower than in the U.S. (and in many cases, negative) primarily due to more
accommodative central bank policy coupled with stubbornly low inflation.
Source: Bloomberg

3. 10-Year Yields
Experience Insight Impact 3
Over the past 2 years, the 10-Year Treasury has seen an unusual move from multi-year highs of
3.24% to below 1.5% (close to the lows since the financial crisis). Even with the sharp upward
yield move in September, the levels remain near historical lows.
Source: Bloomberg

4. Future Expectations Continue to Change
Experience Insight Impact 4
A 25 basis point rate cut during the September meeting on 9/18/19 seems to be a virtual certainty, with the market
expecting several additional cuts over the next year. The timing is somewhat less certain than it was a few weeks
ago. Nonetheless, one year out, the market expects the Fed will have reduced the target rate by more than 50 bps
from where it is today.
Source: Bloomberg

5. Global Central Banks
Experience Insight Impact 5
Central Bank policy generally focuses on short term securities, often referred to as the short end of the curve. The Federal Reserve
(white), the Bank of England (yellow), the ECB (blue), and the Bank of Japan (pink) all remain highly accommodative, although the Fed
has been more aggressive in the past few years with regards to raising rates. These policies have insured that liquidity remains high for
investors.
Source: Bloomberg

6. Global Negative Yields
Experience Insight Impact 6
Even with the recent rise in interest rates, a staggering $13.4 trillion of debt outside of the U.S. has a negative yield. The search for
yield and higher-yielding investment vehicles remains a major focus for investors.
NOTE: The concept of a negative yielding bond implies that an investor pays more for the bond than they will receive in income plus principle at maturity,
locking in a loss. Investors are currently willing to do this because of the reliability, liquidity and safety that high quality government and corporate bonds
provide, and that investors such as pension funds, insurers and others require. (source: Bloomberg “The Unstoppable Surge in Negative Yields Reaches $17 Trillion”, 8/30/19)
Source: Bloomberg

7. Market Perspective - September 2019
Experience Insight Impact
Conclusion: Unquestionably, central banks around the globe have distorted the fixed income
landscape. With yields near historical lows, the search for safety and income has driven some
investors to take additional risks, including purchasing very low or even negative yielding
securities. Remaining flexible may allow investors to capture unique, risk-adjusted returns in
areas such as private credit.
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8. Disclaimer
Experience Insight Impact
Opinions expressed in this commentary may change as conditions warrant and are for
informational purposes only. Information contained herein is not intended to be personal
investment advice for any specific person for any particular purpose. We utilize information
sources that we believe to be reliable but cannot guarantee the accuracy of those sources. Past
performance is no guarantee of future performance; investing involves risk and may result in loss
of capital. No graph, chart, formula or other device can, in and of itself, be used to determine
which securities to buy or sell, or when to buy or sell such securities, or can assist persons in
making those decisions. Consider seeking advice from a professional before implementing any
investing strategy.
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