Our services in the selected location:
  • No services available for your region.
Select Location:
Remember my selection
Your browser is out of date. It has known security flaws and may not display all features of this and other websites

August 2019 | GSAM Connect

Can a Negative be Positive? In Our View, Yes.

One year ago, German sovereign bonds with a maturity of six-years or less delivered a negative yield. As of this month, negative yields extend across the maturity spectrum through to 30-year bonds (Exhibit 1). Euro-denominated corporate bond yields have tracked sovereign bond yields lower, with around three quarters of the investment grade market being in negative yield territory (Exhibit 2).

Faced with this low or negative rate backdrop, growth uncertainty and yield curve inversion investors may seek to de-risk. However, we think the current environment—which has also been characterized by an uptick in bond-level performance dispersion¹—presents continued openings for active security selection.

Moreover, we think forthcoming monetary policy easing in the Euro area may provide a near-term tailwind for euro-denominated corporate credit, thereby diminishing the case to be underweight. In addition, on a currency-hedged basis, it is not necessarily attractive for European investors to seek higher yields in US fixed income. In fact, after taking into consideration hedging costs, any perceived yield premium can be eroded or even turn negative.

Overall, we would caution against the common perception that negative yields preclude positive returns. In our view, active management, including security selection and yield curve shape views, can continue to deliver potential positive returns, even against a rising stockpile of negative yielding-debt.

Exhibit 1 Negative yields have extended to longer sovereign bond maturities…

Source: Macrobond, GSAM. As of August 28, 2019.

Exhibit 2: …and across euro-denominated corporate bond markets

Source: BoAML ICE European Corporate Index. As of August 2019.

Stay posted on the latest market developments and key themes for your portfolios and practices.
Get Connected

RELATED INSIGHTS

July 2019
The Interaction of Growth and Policy

Expectations for easier monetary policy in response to weaker growth prospects have given rise to three key market themes among fixed income spread sectors, including corporate credit.

June 2019 | GSAM Connect
Embrace the Staycation: Investing in the European “Everyday Economy”

We remain overweight US corporate credit as we expect policy support to elongate the US expansion, and we see value in pairing spread sector exposures with duration. This barbell approach to credit-rate positioning has supported performance during risk-off episodes this year.