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Source: Barclays and BofA Merrill Lynch.
1 The BofA Merrill Lynch U.S. Treasury Bill 3-Month Index.
2 The Barclays U.S. Treasury 1–5 Year Index.
3 The BofA Merrill Lynch U.S. Corporate 'A'-Rated 1–5 Year Index.
4 The BofA Merrill Lynch CMBS Fixed Rate 'AAA'-Rated 1–5 Year Index.
5 The Barclays High Yield 'Ba'-Rated 1–5 Year Index.
Mortgage backed securities are subject to prepayment risks. In general the bond market is volatile, and bonds entail interest rate risk.
(As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Bond funds also entail the risk of issuer or counterparty default, issuer credit risk, and inflation risk.
The credit quality of the securities in a portfolio is assigned by a nationally recognized statistical rating organization (NRSRO), such as Standard & Poor’s, Moody's, or Fitch, as an indication of an issuer's creditworthiness. The credit quality distribution breakdown is not an S&P credit rating or an opinion of S&P as to the creditworthiness of the portfolio.
Treasuries are debt securities issued by the U.S. government and secured by its full faith and credit. Income from Treasury securities is exempt from state and local taxes. The historical data are for illustrative purposes only, do not represent the performance of any Lord Abbett mutual fund or any particular investment, and are not intended to predict or depict future results. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. Investors may experience different results. Due to market volatility, the market may not perform in a similar manner in the future.
Past performance is no guarantee of future results. Please refer to “Important Information” regarding the economic indicator data in these charts and index information.
Economic weakness and political unknowns continue to make the investment environment a difficult one. As a result, the amount of cash that investors are keeping in money market funds remains high, at $2.5 trillion. This relative safety comes at a price, however. With short-term Treasuries yielding just 0.08%, investors in money market funds are forgoing higher yields that are available at relatively low risk.
Short-term corporate bonds and commercial mortgage-backed securities (CMBS), for example, are offering substantially higher yields, especially in the lower tiers of investment grade and upper tiers of high yield. By stepping out of a money market fund and into 'A' rated corporates or 'AAA' rated CMBS, for example, an investor can capture approximately an additional 125 basis points (bps) of yield. By dipping into the upper tiers of high yield—such as 'Ba' rated corporates—investors can pick up almost an extra 465 bps.
If an investor prefers to remain with investment-grade options, CMBS securities offer greater yields than corporate bonds of the same credit quality. Particularly among the lower tiers, yields on CMBS exceed those on corporates—by 67 bps at the 'AA' rating, 74 bps at 'A,' and 115 bps at 'BBB.'
"This is a very good environment for short-duration, credit-related investments, including corporate bonds, CMBS, and asset-backed securities," said Andrew O'Brien, Lord Abbett Partner and Portfolio Manager of Taxable Fixed Income. "While spreads over Treasuries are not as wide as they were during the peak of the crisis in 2009, they are still reasonably wide versus their long-term averages. So we still see opportunities, particularly in industries and sectors that don't require rapid economic growth, but where 1–2% growth is sufficient."
All links are directed to Lord Abbett’s website.
Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The historical data on page 1 are an illustration of commonly used economic indicator indexes and do not depict or predict the performance of any Lord Abbett mutual fund or any investment. All indexes are unmanaged and do not reflect reinvestment of dividends and distributions, deduction of management fees, or operating expenses. An investor cannot invest directly in an index.
Investors should consult with a financial advisor on the strategy best for them based on their individual goals, risk tolerance, and investing time horizon.
Neither diversification nor asset allocation can guarantee a profit or protect against loss in declining markets.
A Note about Risk: The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy. The value of investments in fixed-income securities will change as interest rates fluctuate. As interest rates fall, the prices of debt securities tend to rise, and as interest rates rise, the prices of debt securities tend to fall. Investments in high-yield securities (sometimes called junk bonds) carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal. Income from municipal securities may be subject to the alternative minimum tax. Federal, state, and local taxes may apply. There is a risk that a bond issued as tax-exempt may be reclassified by the IRS as taxable, creating taxable rather than tax-exempt income. Bonds may also be subject to other types of risk, such as call, credit, liquidity, interest-rate, and general market risks. No investing strategy can overcome all market volatility or guarantee future results.
Foreign securities generally pose greater risk than domestic securities, including greater price fluctuations and higher transaction costs. Foreign investments also may be affected by changes in currency rates or currency controls. With respect to certain foreign countries, there is a possibility of nationalization, expropriation, or confiscatory taxation, imposition of withholding or other taxes, and political or social instability that could affect investments in those countries. The securities markets of emerging countries tend to be less liquid, to be especially subject to greater price volatility, to have a smaller market capitalization, and to have less government regulation, and may not be subject to as extensive and frequent accounting, financial, and other reporting requirements as securities issued in more developed countries. Further, investing in the securities of issuers located in certain emerging countries may present a greater risk of loss resulting from problems in security registration and custody or substantial economic or political disruptions. Foreign currency exchange rates may fluctuate significantly over short periods of time. They generally are determined by supply and demand in the foreign exchange markets and relative merits of investments in different countries, actual or perceived changes in interest rates, and other complex factors. Currency exchange rates also can be affected unpredictably by intervention (or the failure to intervene) by U.S. or foreign governments or central banks, or by currency controls or political developments.
Average yield to maturity is the rate of return anticipated on a bond if it is held until the maturity date.
Although U.S. government securities are guaranteed as to payments of interest and principal, their market prices are not guaranteed and will fluctuate in response to market movements.
An investment in a money market fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.
The credit quality ratings of the securities in a portfolio are assigned by a nationally recognized statistical rating organization (NRSRO), such as Standard & Poor’s, Moody’s, or Fitch, as an indication of an issuer’s creditworthiness. Ratings range from AAA (highest) to D (lowest). Bonds rated BBB or above are considered investment grade. Credit ratings BB and below are lower-rated securities (junk bonds). High-yielding, non-investment-grade bonds (junk bonds) involve higher risks than investment-grade bonds. Adverse conditions may affect the issuer’s ability to pay interest and principal on these securities. Credit quality distributions breakdown is not an S&P credit rating or an opinion of S&P as to the creditworthiness of the portfolio.
The S&P 500® Index is a market capitalization-weighted index of common stocks.
The S&P 500® Index Excluding Financials is a subset of the S&P 500 Index that excludes the financial sector.
The opinions in Market View are as of the date of publication, are subject to change based on subsequent developments, and may not reflect the views of the firm as a whole. The material is not intended to be relied upon as a forecast, research, or investment advice, is not a recommendation or offer to buy or sell any securities or to adopt any investment strategy, and is not intended to predict or depict the performance of any investment. Readers should not assume that investments in companies, securities, sectors, and/or markets described were or will be profitable. Investing involves risk, including possible loss of principal. This document is prepared based on the information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information. Investors should consult with a financial advisor prior to making an investment decision.
Investors should carefully consider the investment objectives, risks, charges, and expenses of the Lord Abbett funds. This and other important information is contained in the Fund’s summary prospectus and/or prospectus. To obtain a prospectus or summary prospectus on any Lord Abbett mutual fund, contact your investment professional or Lord Abbett Distributor LLC at 888-522-2388, or visit us at www.lordabbett.com. Read the prospectus carefully before investing.
Shares of Lord Abbett mutual funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested.