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A Low Yield World

Faced with a rising tide of low or negative yielding debt, investors often seek out higher yields in other regions, at longer maturities or at lower credit ratings. In this publication we aim to dispel the misconception that investing in low or negative yielding debt cannot generate positive total returns and we outline active investment strategies that global fixed income investors can employ to potentially generate a positive return.

Speed Read

Low rates look set to persist but...
Central banks look set to remain accommodative for a prolonged period of time due to subdued inflation, downside growth risks and uncertainty around macro variables such as the neutral policy rate. As such, an environment of low and negative yields across fixed income markets may be more sustainable and persistent than many investors would have thought prior to this cycle.
...simply reaching for higher yields is not sufficient...
A common misconception is that an investment in a negative or low yielding asset cannot generate a positive return. In turn, a common investor response is to seek out higher yields in other regions (typically the US), at longer maturities or at lower credit ratings. However, on a currency-hedged basis, any perceived yield pick-up can be eroded or even eliminated.
...which is why we believe active management is essential
For investors who choose not to (or cannot) venture beyond the universe of sub-zero debt, active investment strategies, including relative value rate exposures and yield curve shape views can potentially generate positive returns from investments in low or negative yielding assets.


GSAM Investors Weigh In

"Low inflation, downside growth risks and uncertainty around macro variables has led central banks to view incoming data through a dovish lens."

Simon Dangoor, Head of Macro Rates Investing

"Currency hedging costs can enhance but also erode or even eliminate any yield pick-up for investors venturing beyond their home market."

Hugh Briscoe, Global Fixed Income Portfolio Manager

"Negative rates at this stage of the cycle are unprecedented. But this novel market phenomenon does not alter the ability of active investors to identify potential return opportunities."

Ashish Shah, Co-Chief Investment Officer, Global Fixed Income

Charting the Rate Backdrop

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A Low Yield World


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