What’s Behind the Drop in Bond Yields? | Lord Abbett
Image alt tag

Error!

There was a problem contacting the server. Please try after sometime.

Sorry, we are unable to process your request.

Error!

We're sorry, but the Insights and Intelligence Tool is temporarily unavailable

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Error!

We're sorry, but the Literature Center checkout function is temporarily unavailable.

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Tracked Funds

You have 0 funds on your mutual fund watch list.

Begin by selecting funds to create a personalized watch list.

(as of 12/05/2015)

Pending Orders

You have 0 items in your cart.

Subscribe and order forms, fact sheets, presentations, and other documents that can help advisers grow their business.

Reset Your Password

Financial Professionals*

Your password must be a minimum of characters.

Confirmation Message

Your LordAbbett.com password was successully updated. This page will be refreshed after 3 seconds.

OK

 

Economic Insights

Lord Abbett Portfolio Manager Leah Traub looks at the factors driving recent movements in interest rates. 

Transcript

Air Date: July 26, 2021

Hi this is Leah Traub, Partner and Portfolio Manager in taxable fixed income.

What is going on with rates? Why is the 10 year yield falling over the last couple of months and is now sitting at below 1.2% here in the middle of July? Well, I’m going to give you three reasons in order of importance.

Title: 1. The Fed

The first is the Fed the Fed was saying, for really, all the past year, that they are going to be reactionary not proactive. What that means is they wanted to see the economy run hot, they wanted to see growth higher they wanted to see inflation meaningfully above 2% so that they could get the average of inflation over their cycle of around 2%. So that’s what they were telling the market and the market responded by steepening the yield curve. June FOMC, the Federal Open Market Committee meeting happened and the tune changed slightly they said we're seeing the high inflation prints that you're seeing. And we're getting a little concerned. And the Fed basically said to the market, we will react. If we get worried about inflation, we will react.

So what the market did is, they said, okay, the Fed may start tapering their bond purchases earlier or more quickly, so they increase rates in the shorter end, but what that meant is that the Fed would be successful at tamping down future inflation, so therefore they decrease rates and the longer end of the market in the 10 year and the 30 year, we’ve seen flattening of the yield curve, since that middle of June.

Title: 2. Covid

Number two: Covid. We can’t escape it unfortunately the rise and the variance has created some concern. We’re seeing case counts go up in the US, but also, and really importantly internationally, where the vaccine rates haven't been as high. You know we're seeing a delayed kind of relaxing of the restrictions and we're even seeing new restrictions being put back on in terms of travel. So people are getting a little bit concerned that this is going to spill over into economic growth.

Title: 3. Fiscal Stimulus

And then, lastly: fiscal stimulus. Earlier this year, there was very high expectations, so we would get a second stimulus package; you know infrastructure related plus other stuff that was going to be really large. The Democrats wanted a really large second package in a couple of trillion dollar range. That seems unlikely at this point. It seems that you know, maybe we will get an infrastructure deal, but it would be a lot smaller maybe we only around 1 trillion, and it will be spread out of course over several years.

So this combination of very accommodative monetary policy and very accommodating fiscal policy that we were really talking about, for the first three four months of the year, that probability has now gone down that we're going to see both of those and we're going to see some removal of accommodation likely in the fourth quarter. We've also probably seen peak GDP growth q2 is probably the peak, so it might be a little rocky for the next six weeks or so, but then, but I think we're going to be back on track.

OUTRO

Thanks for watching and thanks for your continued interest in Lord Abbett.


Disclosure

Unless otherwise noted, all discussions are based on U.S. markets and U.S. monetary and fiscal policies. Asset allocation or diversification does not guarantee a profit or protect against loss in declining markets.No investing strategy can overcome all market volatility or guarantee future results. Market forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.

The value of investments in fixed-income securities will change as interest rates fluctuate and in response to market movements. Generally, when interest rates rise, the prices of debt securities fall, and when interest rates fall, prices generally rise. 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. Bonds may also be subject to other types of risk, such as call, credit, liquidity, interest-rate, and general market risks.

Longer-term debt securities are usually more sensitive to interest-rate changes; the longer the maturity of a security, the greater the effect a change in interest rates is likely to have on its price. Lower-rated bonds may be subject to greater risk than higher-rated bonds. No investing strategy can overcome all market volatility or guarantee future results.

The credit quality 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.

Important Information for U.S. Investors:

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett’s products and services and to otherwise provide general investment education.

None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.

Important Information for Non-U.S. Investors:

This communication is issued in the United Kingdom and distributed throughout Europe by Lord Abbett UK Ltd., a Private Limited Company registered in England and Wales under company number 10804287 with its registered office at Tallis House, 2 Tallis Street, Temple, London, United Kingdom, EC4Y 0AB. Lord Abbett UK Ltd (FRN 783356) is an Appointed Representative of Duff & Phelps Securities Ltd. (FRN 466588) which is authorised and regulated by the Financial Conduct Authority.

The views and opinions expressed are as of the date of publication and are subject to change based on subsequent developments, and may not reflect the views of the firm as a whole.

The information discussed is only for illustrative purposes and is intended to provide general investment education and is not intended to provide legal, tax or investment advice.

It is not intended to be relied upon as a forecast or research regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment or serve as a recommendation or offer to buy or sell securities.

Copyright © 2021 Lord, Abbett & Co. LLC. All rights reserved. Lord Abbett mutual funds are distributed by Lord Abbett Distributor LLC.

This recording may not be reproduced in whole or in part or any form without the permission of Lord Abbett.

FEATURED SPEAKER

image

Please confirm your literature shipping address

Please review the address information below and make any necessary changes.

All literature orders will be shipped to the address that you enter below. This information can be edited at any time.

Current Literature Shipping Address

* Required field