Opportunities in Global Fixed Income
An allocation to global bond strategies may offer investors more choice, attractive yields and enhanced diversification.
Given the opportunity for diversification that global bond strategies provide, it’s interesting that many investors still don’t have a dedicated allocation. The case is compelling; with U.S. interest rate and trade policy still in flux, going global can help balance risks here while providing access to higher yields.
Did you know that 60% of the global bond market is outside of the U.S.?
Global bonds based on the Bank for International Settlements' Summary of Debt Securities Outstanding, as of June 30, 2017.
Three Potential Advantages of a Global Bond Allocation
1. More Choice
Nearly two-thirds of the world’s sovereign debt is issued outside of the U.S. That’s a huge pool of choices that active managers can use to manage duration1, seek to enhance return, and diversify risks specific to U.S. bonds.
2. Attractive Yields
Though low rates have prevailed in the U.S. in recent years, many other countries offer higher yields, or the chance for price appreciation, enhancing total return. Of course, attractive yields can come with risks, and currency exchange rates add complexity – highlighting the value of a highly experienced manager.
3. Enhanced Diversification
Economic and political conditions can vary widely around the world, and local factors – including monetary policy and the current stage of the business cycle – can move bond prices contrary to broad trends. The result: fixed income markets sometimes have low correlations2, to one another and to other asset classes. Selective holdings within a global opportunity set can therefore provide important diversification benefits.
In This Series
An actively managed, global fixed income strategy that seeks to maximize total return through strategic investment in countries, currencies and sectors.
1 Duration measures the sensitivity of price (the value of principal) of a fixed income investment to a change in interest rates. The higher the duration number, the more sensitive a fixed income investment will be to interest rate changes.
2 Correlation is a statistical measure of the relationship between two sets of data. When asset prices move together, they are described as positively correlated; when they move opposite to each other, the correlation is described as negative or inverse. If price movements have no relationship to each other, they are described as uncorrelated.
IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice. Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors.
Diversification does not guarantee a profit or protect against a loss.
Active management does not ensure gains or protect against market declines.
Yields and dividends represent past performance and there is no guarantee they will continue to be paid.
High yield bonds are subject to increased risk of default and greater volatility due to the lower credit quality of the issues.
International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
Asset-backed, mortgage-backed or mortgage related securities are subject to additional risks such as prepayment and extension risks.
U.S. Treasuries are direct debt obligations issued and backed by the "full faith and credit" of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasury securities, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.