Optimizing Fixed Income Allocation in the Current Environment
Explore insights on optimizing your fixed income allocation in the current environment, including performance of government and corporate bonds during equity drawdowns, 10-year bond yields, corporate bond OAS data, portfolio construction correlations across markets, and enhancing fixed income efficiency. Gain a comprehensive view to make informed decisions for your fixed income portfolio.
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CIBC ASSET MANAGEMENT INSIGHT PROGRAM OPTIMIZING YOUR FIXED INCOME ALLOCATION FOR THE CURRENT ENVIRONMENT
Bonds as Tail Protection Performance During Worst Quarterly Equity Drawdowns Since 2002 GoC Bonds and Corporate IG Bonds During Worst Quarterly Equity Drawdowns 2002 - 2021 GoC Bonds and Corporate IG Bonds During Worst Quarterly Equity Drawdowns 2002 - 2021 10.00% 5.00% 0.00% -5.00% -10.00% -15.00% -20.00% -25.00% Sept. June Jun 2011 June 2011 Mar. Sep 2011Dec 2018Sep 2015Jun 2012 Sept. 2011 2018 Dec. Sept. 2015 June 2012 Dec 2008 Dec. 2008 Mar 2020 2020 Sept 2008 2008 Jun 2010 2010 GoC IG Corporate S&P/TSX Composite Data as at December 31, 2021 Source: eVestment; GoC = Bloomberg Canadian Aggregate Treasury Index, IG Corporate = Bloomberg Canadian Aggregate Corporate Index
Government of Canada 10-Year Bond Yields 3.00% 3 2.50% 2.5 2.00% 2 10-Year Average 1.50% 1.5 1.00% 1 0.50% 0.5 0 Data as at February 27, 2022 Source: Bank of Canada
US Investment Grade Corporate Bond OAS 4.50 4.00 3.50 3.00 2.50 (%) 2.00 1.50 10-Year Average 1.00 0.50 0.00 Data as at February 24, 2022 Source: Federal Reserve Bank of St. Louis
US High Yield Corporate Bonds OAS 12.00 10.00 8.00 6.00 (%) 10-Year Average 4.00 2.00 0.00 Data as at February 24, 2022 Source: Federal Reserve Bank of St. Louis
Portfolio Construction Correlations Across Markets Bloomberg Canadian Aggregate - Treasury Bloomberg Canadian Aggregate - Corporate Bloomberg Canadian Issues - Govt- Related Bloomberg US Corporate High Yield 2% Cap CS FTSE WGBI Hedged (CAD) Leveraged Loan Bloomberg Canadian Aggregate - Corporate 1.00 Bloomberg Canadian Aggregate - Treasury 0.63 1.00 Bloomberg Canadian Issues - Govt-Related 0.84 0.90 1.00 FTSE WGBI Hedged (CAD) Bloomberg US Corporate High Yield 2% Cap 0.56 0.83 0.77 1.00 0.43 -0.13 0.15 -0.12 1.00 CS Leveraged Loan 0.39 -0.29 0.03 -0.27 0.85 1.00 Data as at December 31, 2021 Source: eVestment; Monthly correlations for the period from September 2002 to December 2021; Bloomberg US Corporate HY and CS Leveraged Loan data is in USD as a proxy for a hedged return.
Portfolio Construction Enhancing Fixed Income Efficiency Fixed Income Returns Analysis - 2003 - 2021 (19 years) Sample Core Plus Structure Traditional Core Canadian Fixed Income Plus Sectors Bloomberg Canadian Aggregate - Treasury Bloomberg Canadian Aggregate - Corporate Bloomberg Canadian Aggregate Government Related Bloomberg Canadian Aggregate Index Bloomberg U.S. Corporate High Yield 2% Cap 80% Canadian Aggregate, 10% WGBI, 5% High Yield, 5% Leveraged Loans* WGBI (Hedged to CAD) CS Leveraged Loan 4.78% Annualized Return 3.93% 4.99% 4.94% 4.59% 4.03% 8.33% 4.96% Annualized Risk 3.80% 3.52% 4.50% 3.89% 3.03% 8.86% 6.55% 3.48% Risk/Return 1.03 1.42 1.10 1.18 1.33 0.94 0.76 1.37 *Rebalanced monthly Returns in CAD (Global index is hedged to CAD; U.S. indices are in USD to approximate hedged returns) Data as at December 31, 2021 Source: eVestment
Bond Opportunities: Floating Rate Loans have consistently provided downside protection from rising rates Bond Performance During Largest Monthly Interest Rate Increases (>30 bps Move) 2012 - 2021 Bond Performance During Largest Monthly Interest Rate Increases (>30bps Move) 2012 - 2021 1.50% 1.00% 0.50% 0.00% -0.50% -1.00% -1.50% -2.00% -2.50% Feb 21 Jun 13 Nov 16 May 13 Jul 17 Jan 18 10-Yr GoC Yield Change IG Corp GoC US Floating Rate Loan Data as at December 31, 2021 Source: eVestment; GoC = Bloomberg Canadian Aggregate Treasury Index, IG Corporate = Bloomberg Canadian Aggregate Corporate Index; US Floating Rate Loan = Credit Suisse Leveraged Loan Index in USD.
Bloomberg US Aggregate Bond Index Calendar Year Returns (1976 2021) 35 30 25 20 15 (%) 10 5 0 -5 Data as at December 31, 2021 Source: eVestment
Disclaimer The views expressed in this document are the personal views of the Doug MacDonald and David Wong and should not be taken as the views of CIBC Asset Management Inc. This document is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with his or her advisor. Certain information that we have provided to you may constitute forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or achievements to be materially different than the results, performance or achievements expressed or implied in the forward-looking statements. All opinions and estimates expressed in this document are as of the date of publication unless otherwise indicated, and are subject to change. Statistical data on the Bank of Canada web site is derived from sources that the Bank considers sufficiently reliable to justify inclusion. However, we cannot guarantee the completeness or accuracy of the data. Also, the Bank of Canada may periodically revise certain data without notice. You acknowledge and agree that your use of the data is at your own risk and that none of the parties involved in creating, producing or delivering this site is liable for any loss, injury, claim, liability or damage of any kind resulting in any way from: (a) any errors in or omissions from the data; (b) the unavailability or delay of the data; or (c) your use of the data or any conclusions you draw from it, regardless of whether you received any assistance from the Bank of Canada or its employees with regard to the data. CIBC Asset Management and the CIBC logo are trademarks of Canadian Imperial Bank of Commerce (CIBC), used under license. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc.
