spdr etfs fixed income chart pack - ssga · source: bloomberg finance, l.p as of december 31, 2019....
TRANSCRIPT
2890635.1.1.AM.RTL
SPDR®
ETFs
Fixed Income
Chart Pack
Please see Appendix A for more information on investment terms used in this Chart Pack.
Charts for the Latest Bond Market Insights and Analytics
Q1 2020
1
Source: Bloomberg Finance, L.P. As of December 31, 2019. Past performance is not a guarantee of future results. T-bills - Bloomberg Barclays U.S. Tr Bills: 1–3 Months Index, US Aggregate — Bloomberg
Barclays US Agg Index, US Treasury — Bloomberg Barclays US Treasury Index, US TIPS — Bloomberg Barclays Global Inflation-Linked: U.S. TIPS Index, US MBS — Bloomberg Barclays US MBS Index, US IG
Corporates — Bloomberg Barclays US Corporate Index, 1–10 YR IG Corporates — Bloomberg Barclays Intermediate Corporate Index, 10 Yr+ IG Corporates — Bloomberg Barclays Long U.S. Corporate Index, US
High Yield — Bloomberg Barclays VLI: High Yield Index, Leveraged Loans — S&P/LSTA Leveraged Loan Index, Developed Ex-US IG Corporates — Bloomberg Barclays Global Agg Corporate ex USD $1B+ Index,
Developed Ex-US Sovereign Bonds — Bloomberg Barclays Global Treasury ex-U.S. Index, EM Hard Currency Sovereign Bonds — J.P. Morgan EMBI Global Core Index, EM Local Sovereign Bonds — Bloomberg
Barclays EM Local Currency Govt Diversified Index
2890635.1.1.AM.RTL 2
Bond Market PerformanceWith interest rates rising modestly, rate sensitive sectors posted losses or small
gains in December. With spreads tightening, however, credit had strong returns.
Bond Sector Performance
0.1%
-0.1% -0.6%
0.4% 0.3% 0.3% 0.4% 0.1%
2.1% 1.6% 1.8% 1.1%2.2%
3.2%
-6%
-5%
-4%
-3%
-2%
-1%
0%
-5%
0%
5%
10%
15%
20%
25%
30%
T-Bills USAggregate
USTreasury
US TIPS US MBS US IGCorporates
1-10 Yr IGCorporates
10 Yr+ IGCorporates
US HighYield
LeveragedLoans
DevelopedEx-US IG
Corporates
DevelopedEx-US
SovreignBonds
EM HardCurrencySovereign
Bonds
EM LocalCurrencySovereign
Bonds
1 Y
ea
r M
ax
Dra
wd
ow
n (
%)
Retu
rns
(%
)
December Q4 1 Year 1 Year Max Drawdown
Long-term IG Corporates have had the best returns in 2019, but credit related
instruments had stronger returns over the most recent quarter as the curve steepened
-98-81 -90
-102-92 -85 -82 -75 -77
-62
-16-3 -3 -1 -4
0 7 10 14 18
-41-27 -23 -18
-5
515 22 25 28
-150
-100
-50
0
50
1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 30Y
Ch
an
ge
in
Bp
s
1 Year December Q4
Source: Bloomberg Finance, L.P. As of December 31, 2019. Past performance is not a guarantee of future results.
2890635.1.1.AM.RTL 3
Yield CurveThe yield curve steepened in December, as hopes of a trade deal and a pre-Iran
strike softening of geopolitical tensions pushed long-term yields higher
US Treasury Curve US Treasury Active:
2.43 2.362.48
2.602.49 2.46 2.51 2.59
2.69
3.02
1.87 1.82 1.82 1.76
1.62 1.56 1.54 1.61 1.67
2.11
1.45
1.55 1.59 1.58
1.57 1.611.69
1.831.92
2.39
1.0
1.5
2.0
2.5
3.0
3.5
Yie
ld (
%)
12/31/2018 9/30/2019 12/31/2019
-2%
-2%
-1%
-1%
0%
1%
1%
2%
2%
3%
3%
4%
Adrian Crump & Moench 10 Year Treasury Term Premium
US 10 Year Yield
US 2 Year Yield
US 10 Year Yield- US 2 Year Yield
Low growth prospects have anchored term
premiums near historical lows this year
Source: Bloomberg Finance, L.P. As of December 31, 2019. Past performance is not a guarantee of future results. The term premium is the excess yield that investors require to
commit to holding a long-term bond instead of a series of shorter-term bonds. The copper-to-gold ratio indicates the potential of economic growth as gold is more of a defensive asset
while copper is more cyclical.
2890635.1.1.AM.RTL 4
Yield Curve (continued)While the yield curve steepened in December, it still remains flat as the long end
continues to be constrained by slow growth dynamics
US Treasury Curve (10-and-2 Year Spreads) and Term Premium
3
4
5
6
1.3%
2.0%
2.7%
3.4%
Rati
o
US 10 Year Yield (%) Copper to Gold Ratio
US 10 Year Yield versus the Copper to Gold Ratio
After falling for the entire year,
the copper-to-gold ratio
rebounded into year end
-10
-15
-40
-19
-50
-142
-59
-30
-196
-159
-211
-107
IG Corporate
US BBB Rated
Broad High Yield
US High Yield BB Rated
US High Yield B Rated
High Yield CCC & Lower
1 Year December
Source: Bloomberg Finance, L.P. BofA Merrill Lynch, As of December 31, 2019. US High Yield CCC & Lower = BofA ML US High Yield CCC & Lower Rated Index. US High Yield B Rated = BofAML US High Yield B Rated Index. BBB Rated = BofA ML US Investment Grade BBB Rated Index. Broad high yield = Bloomberg Barclays US Corporate High Yield Index. IG Corporate = Bloomberg Barclays US Corporate Index. Past performance is not a guarantee of future results.
2890635.1.1.AM.RTL 5
Credit Trends Credit spreads continued to tighten in December, as investors became less
concerned about an imminent recession risk
Credit Spreads Credit Spread Changes in Basis Points
Credit Spread Current vs. 20-Yr Averages
997
363
201
330
129
94
1173
567
381
548
163
157
US High Yield CCC & Lower
US High Yield B Rated
US High Yield BB Rated
Broad High Yield
US BBB Rated
IG Corporate
20-Yr Avg
As Of 12/31/2019
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Bloomberg Barclays US Corporate High Yield Index
Bloomberg Barclays US Corporate Index
Bloomberg Barclays High Yield Energy Index
HY spreads are 39%
below their
20-year averages
Despite the rally in the broad high yield
market, Energy spreads remain elevated
Source: Bloomberg Finance, L.P. As of December 31, 2019. Past performance is not a guarantee of future results.
2890635.1.1.AM.RTL 6
Credit Trends (Continued)Due to the sizeable spread compression for high yield bonds, they now trade at the
most negatively convex level ever. Yet, downgrades have increased
High Yield Bond Convexity
-0.5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
Effective Convexity
High Yield Upgrade to Downgrade Trends
Negative convexity indicates less upside relative to
downside in high yield over the next year 0
0.5
1
1.5
2
2.5
0
50
100
150
200
250
300
350
400
450
500
Up
-to
-Do
wn
gra
de
Rati
o
No
. o
f U
pg
rad
es
an
d D
ow
ng
rad
es
Upgrades Downgrades Up-to-Downgrade Ratio
Up-to-downgrade ratio dropped to the
lowest since 2009
-2
0
2
4
6
8
10
12
14
16
Year to Date Q4 December
%
Curve Change Curve Carry Spread Return
Source: Bloomberg Finance, L.P As of December 31, 2019. Past performance is not a guarantee of future results. US IG Corporates - Bloomberg Barclays US Corporate Index, US
High Yield - Bloomberg Barclays VLI: High Yield Index
2890635.1.1.AM.RTL 7
Credit AttributionHigh yield credit registered a gain in December, with the change in spread driving
more than 100% of the return and offsetting the impact from the curve change
US High Yield Attribution
Spread tightening drove 65% of the return for
HY in 2019. But 100% in Q4 and December
-4
-2
0
2
4
6
8
10
12
14
16
Year to Date Q4 December
%
Curve Change Curve Carry Spread Return
US IG Corporate Attribution
14.54
2.38
1.21
15.22
2.72
2.05
Except in Q4, the flattening of the curve
was a tailwind for IG corporates in 2019
Source: Bloomberg Finance, L.P. As of December 31, 2019. Past performance is not a guarantee of future results.
2890635.1.1.AM.RTL 8
Convertibles AttributionConvertibles, following a 25% return in 2019, stock sensitivity (delta) increased near
its long term median. However, it remains well below the 2017 very stock-like highs
US Convertibles Liquid Bond Index — Average Stock Delta US Convertibles Liquid Bond Index — Premium to Parity
Low delta, high premium = bond like
High delta, low premium = stock like
15
25
35
45
55
65
75
Jul-09 Sep-11 Nov-13 Jan-16 Mar-18
% Prem. Median Bottom Quintile Top Quintile
Premiums fell as convertibles became more stock-like
45
50
55
60
65
70
75
80
85
Jul-09 Sep-11 Nov-13 Jan-16 Mar-18
Delta Median Bottom Quintile Top Quintile
Median level delta and premiums indicate convertibles
are balanced between stock and bond-like traits
-10%
-7%
-4%
-1%
2%
5%
-10% -5% 0% 5%
EM
Cu
rren
cy M
on
thly
Retu
rns
EM Local Sovreign Debt Monthly Returns
Source: Bloomberg Finance, L.P. As of December 31, 2019
EM Local — Bloomberg Barclays EM Local Sovereign Bond Index.
Past performance is not a guarantee of future results.
2890635.1.1.AM.RTL 9
EM Debt AttributionA true softening of trade tensions and a Federal Reserve rate cut boosted emerging
market (“EM”) currencies in Q4 by 3.5%, benefiting EM local debt returns
EM Local Sovereign Debt Attribution
-4
-2
0
2
4
6
8
10
12
14
Year to Date Q4 December
%
Curve Change Curve Carry Spread Return Currency Return
EM Local Sovereign Debt Return Correlation to
EM Currencies (2009–2019)
0%
2%
4%
6%
8%
10%
12%
14%
0% 5% 10% 15% 20%
EM
Cu
rren
cy 1
Year
Sta
nd
ard
D
evia
tio
n R
etu
rns
EM Local Sovereign 1 Year Standard Deviation of Returns
80% of the Dec. and Q4 return was
from strengthening EM currencies
3.98
9.46
Correlation: 94%
Correlation: 90%
2.21
Source: Bloomberg Finance, L.P. As of December 31, 2019 calculations by SPDR Americas Research. Past performance is not a guarantee of future results.
2890635.1.1.AM.RTL 10
ETF Fund Flow Trends Fixed Income ETF flows reached an all-time record for a calendar year, taking in
over $150 billion — or 23% of their start of year assets
Yearly US-Listed FI ETF Fund Flows ($Billions) US-Listed Fixed Income ETF Asset Levels: Current versus
Ensemble Projection ($ Trillions)
$6 $13
$24
$47
$32
$47
$55
$7
$53
$61
$92
$127
$98
$156
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Fixed income ETFs averaged $12.9 billion a month
in 2019, with one month amassing a record
$26 billion (June)
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
Jan-17 Oct-17 Jul-18 Apr-19 Jan-20 Oct-20 Jul-21 Apr-22
Actual AUM 36 Month Median36 Month Average 36 Month 80th Percentile36 Month 20th Percentile 24 Month Median24 Month Average 24 Month 80th Percentile24 Month 20th Percentile 12 Month Median12 Month Average 12 Month 80th Percentile12 Month 20th Percentile Ensemble AverageEnsemble Average w/ Market Movement
Based on an ensemble projection of historically monthly growth rates, fixed
income ETFs could hit $1.1 trillion by the end of 2020. Read more why here
-$15
-$10
-$5
$0
$5
$10
$15
$201.0
1.5
2.0
2.5
3.0
3.5
4.0
Dec-08 Jun-10 Dec-11 Jun-13 Dec-14 Jun-16 Dec-17 Jun-19
Flo
ws
$B
n
Inve
rted
Yie
ld (
%)
US 10 Year Yield (%) Rolling 12 Month High Yield Flows
Source: Bloomberg Finance, L.P. As of December 31, 2019. Past performance is not a guarantee of future results.
2890635.1.1.AM.RTL 11
ETF Fund Flow Trends (continued)High yield ETFs amassed a record $18 billion of inflows in 2019, pushing their
assets to all-time high of $56 billion
Trailing 12 Month High Yield ETF Flows versus US 10 Year Yield High Yield ETF Secondary and Primary Market Trading Share of
High Yield Market
As rates fell, demand for income increased —
driving flows into high yield ETFs 0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Jan-08 Nov-09 Sep-11 Jul-13 May-15 Mar-17 Jan-19
Secondary Share % Primary Share %LT Median (Secondary) LT Median (Primary)5 Year Median (Secondary) 5 Year Median (Primary)
Despite the flows, HY bond ETF trading in the primary
market as a percent of cash bond trading remained low
Source: Bloomberg Finance, L.P. as of December 31, 2019. Calculations by SPDR Americas Research, Past performance is not a guarantee of future results. Index returns are
unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income.
Returns for periods of less than one year are not annualized.
2890635.1.1.AM.RTL 12
Low Rates = Low Return ExpectationsWhile not at extremes, spreads and current yield levels screen as expensive,
indicating lower levels of returns based on historical trends
5.3%
0%
5%
10%
15%
20%
25%
30%
-5%
0%
5%
10%
15%
20%
25%
30%
% of Obsv.Return (%)
Median 12Mth Return % of Observations
The Agg Starting Yield Level versus Subsequent 3 Year Return US High Yield Starting Spread and Median 12 Mth Return (1999–2019)
0%
5%
10%
15%
20%
25%
Oct-79 Sep-89 Aug-99 Jul-09 Jun-19
%
Subsequent 3 Yr Return At Time Yield to Worst
95% correlation between the Agg’s yield and then
its next subsequent 3 year returns
330 bps is the current spread
The 300–400 range has had the most
observable periods
Source: Bloomberg Finance, L.P. as of December 31, 2019. Calculations by SPDR Americas Research, Past performance is not a guarantee of future results. Index returns are
unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income.
Returns for periods of less than one year are not annualized.
2890635.1.1.AM.RTL 13
Bond Market OutlookTaking on duration may not be optimal as long-duration segments’ strong returns
over the past year have made their yield per duration profile less attractive
1.6
2.3
1.72.0
2.5
1.8
2.3 2.4
5.6
4.4
5.2
2.8
1.9
0.1
3.8
1.8
4.3
6.56.2
4.3
0.2
6.2
3.1
7.9
0
2
4
6
8
10
BloombergBarclays
U.S.Treasury 1-3Year Index
BloombergBarclays
FRN < 5yrIndex
BloombergBarclays
IntermediateTreasury
Index
BloombergBarclays USCorporate 1-3 Year Index
BloombergBarclays USMBS Index
Index
BloombergBarclays US
TreasuryIndex
BloombergBarclays USAgg Index
BloombergBarclays
IntermediateCorporate
Index
S&P/LSTALeveragedLoan 100
Index
BloombergBarclays EM
HardCurrency
Debt
BloombergBarclays USCorporateHigh Yield
Index
BloombergBarclays USCorporate
Index
Yie
ld (
%),
Du
rati
on
(Y
ears
)
Yield to Worst DurationBond Market Segments
The MBS and 1–10 year intermediate corporate market have
a higher yield, but with much less duration than the Agg
Basis Point: One hundredth of one percent, or 0.01%.
The Bloomberg Barclays US Treasury Bill Index tracks the market for treasury bills
issued by the US government. US Treasury bills are issued in fixed maturity terms of 4-,
13-, 26- and 52-weeks. The US Treasury Bill Index is a component of the US Short
Treasury Index along with US Treasury notes and bonds that have fallen below one year
to maturity.
The Bloomberg Barclays Global Aggregate Index is a measure of global investment
grade debt from 24 local currency markets. This multi- currency benchmark includes
treasury, government-related, corporate and securitized fixed-rate bonds from both
developed and emerging markets issuers.
The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index tracks agency
mortgage pass-through securities (no longer incorporates hybrid ARM) guaranteed by
Ginnie Mae (GNMA), Mae (FNMA), and Freddie Mac (FHLMC). The index is constructed
by grouping individual TBA- deliverable MBS pools into aggregates or generics based on
program, coupon and vintage.
Bloomberg Barclays US Aggregate Index: A benchmark that provides a measure of the
performance of the US dollar denominated investment grade bond market, which includes
investment grade government bonds, investment grade corporate bonds, mortgage pass
through securities, commercial mortgage backed securities and asset backed securities
that are publicly for sale in the US.
Bloomberg Barclays US Corporate 1–3 Year Index: The Index includes publicly issued
US dollar denominated corporate issues that have a remaining maturity of greater than or
equal to 1 year and less than 3 years, are rated investment grade.
Bloomberg Barclays US Corporate Bond Index: The Bloomberg Barclays US Corporate
Bond Index measures the investment grade, US dollar-denominated, fixed-rate, taxable
corporate and government related bond markets. It is composed of the US Corporate
Index and a non-corporate component that includes foreign agencies, sovereigns,
supranationals and local authorities.
The Bloomberg Barclays Emerging Markets Local Currency Liquid Government
Index is a country-constrained, more liquid version of the flagship Emerging Markets Local
Currency Government Index, which is designed to provide a broad measure of the
performance of local currency Emerging Markets (EM)
Bloomberg US Treasury Index: The Bloomberg US Treasury Bond Index is a rules-
based, market-value weighted index engineered to measure the performance and
characteristics of fixed rate coupon US Treasuries which have a maturity greater than
12 months.
The Bloomberg Barclays US Convertible Liquid Bond Index is designed to represent
the market of U.S. convertible securities, such as convertible bonds.
Credit Spread: A credit spread is the difference in yield between a US Treasury bond and
a debt security with the same maturity but of lesser quality.
Parity The value of the underlying equity if the convertible is converted. It is equal
to the current stock price multiplied by the number of shares for which the bond may
be exchanged.
S&P/LSTA US Leveraged Loan 100 Index: The S&P/LSTA US Leveraged Loan 100
Index is designed to reflect the largest facilities in the leveraged loan market.
Delta: The sensitivity of one asset to an underlying deriviative
Spread Changes: Changes in the spread between Treasury securities and non-Treasury
securities that are identical in all respects except for quality rating.
Parity The value of the underlying equity if the convertible is converted. It is equal to
the current stock price multiplied by the number of shares for which the bond may
be exchanged.
Standard Deviation: Measures the historical dispersion of a security, fund or index
around an average. Investors use standard deviation to measure expected risk or
volatility, and a higher standard deviation means the security has tended to show higher
volatility or price swings in the past.
Yield: The income produced by an investment, typically calculated as the interest received
annually divided by the investment’s price.
Yield Curve: A graph or line that plots the interest rates or yields of bonds with similar
credit quality but different durations, typically from shortest to longest duration. When the
yield curve is said to be flat, it means the difference in yields between bonds with shorter
and longer durations is relatively narrow. When the yield curve is said to be steepened, it
means the difference in yields between short term and long term bonds increases.
Yield to Worst: Yield to worst is an estimate of the lowest yield that you can expect to
earn from a bond when holding to maturity, absent a default. It is a measure that is used in
place of yield to maturity with callable bonds.
Appendix A
Definitions
142890635.1.1.AM.RTL
The views expressed in this material are the views of SPDR Americas Research Team
and are subject to change based on market and other conditions. This document contains
certain statements that may be deemed forward-looking statements. Please note that any
such statements are not guarantees of any future performance and actual results or
developments may differ materially from those projected.
The information provided does not constitute investment advice and it should not be relied
on as such. It should not be considered a solicitation to buy or an offer to sell a security.
It does not take into account any investor’s particular investment objectives, strategies, tax
status or investment horizon. You should consult your tax and financial advisor.
All material has been obtained from sources believed to be reliable. There is no
representation or warranty as to the accuracy of the information and State Street shall
have no liability for decisions based on such information.
All the index performance results referred to are provided exclusively for comparison
purposes only. It should not be assumed that they represent the performance of any
particular investment.
Bonds generally present less short-term risk and volatility than stocks, but contain interest
rate risk (as interest rates rise, bond prices usually fall); issuer default risk; issuer credit
risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term
securities. Any fixed income security sold or redeemed prior to maturity may be subject to
a substantial gain or loss.
The values of debt securities may decrease as a result of many factors, including, by
way of example, general market fluctuations; increases in interest rates; actual or
perceived inability or unwillingness of issuers, guarantors or liquidity providers to make
scheduled principal or interest payments; illiquidity in debt securities markets; and
prepayments of principal, which often must be reinvested in obligations paying interest at
lower rates.
Equity securities may fluctuate in value in response to the activities of individual
companies and general market and economic conditions.
Foreign investments involve greater risks than US investments, including political and
economic risks and the risk of currency fluctuations, all of which may be magnified in
emerging markets.
Because of their narrow focus, sector funds tend to be more volatile.
Commodities investing entail significant risk as commodity prices can be extremely
volatile due to wide range of factors Bond funds contain interest rate risk (as interest rates
rise bond prices usually fall); the risk of issuer default; issuer credit risk; liquidity risk; and
inflation risk.
The trademarks and service marks referenced herein are the property of their respective
owners. Third party data providers make no warranties or representations of any kind
relating to the accuracy, completeness or timeliness of the data and have no liability for
damages of any kind relating to the use of such data.
Standard & Poor’s, S&P and SPDR are registered trademarks of Standard & Poor/s
Financial Services LLC (S&P); Dow Jones is a registered trademark of Dow Jones
Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use
by S&P Dow Jones Indices LLC (SPDJI) and sublicensed for certain purposes by State
Street Corporation. State Street Corporation’s financial products are not sponsored,
endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and
third party licensors and none of such parties make any representation regarding the
advisability of investing in such product(s) nor do they have any liability in relation thereto,
including for any errors, omissions, or interruptions of any index.
Distributor: State Street Global Advisors Funds Distributors LLC, member FINRA, SIPC.
State Street Global Advisors, One Iron Street, Boston, MA 02210.
Tracking Code: 2890635.1.1.AM.RTL
Expiration Date: September 30, 2020
Appendix B
Important Disclosures
152890635.1.1.AM.RTL