Fixed Income

To develop our fixed income Baseline return expectations, we start with current yields and apply our judgment about the future direction of interest rates (returns are today's yield + changes in price and income over time). We develop a cyclical view of interest based upon sustainable levels given our growth, inflation, and cash projections. 

Outside of the US, most developed markets are still under a very low interest rate regime with real rates negative in many markets. This, of course, augurs for low returns. Further undermining returns is that we project yield increases across most markets.

Expected yields for 10-year government bond yields in five years and 10 years

Region

Region

June 2019 (%)

June 2019 (%)

In 5 Yrs (%)

In 5 Yrs (%)

In 10 Yrs (%)

In 10 Yrs (%)

5 yr Increase (%)

5 yr Increase (%)

10yr Increase (%)

10yr Increase (%)

Region

US

June 2019 (%)

2.01

In 5 Yrs (%)

3.10

In 10 Yrs (%)

3.20

5 yr Increase (%)

1.1

10yr Increase (%)

1.2

Region

Australia

June 2019 (%)

1.32

In 5 Yrs (%)

2.50

In 10 Yrs (%)

3.50

5 yr Increase (%)

1.2

10yr Increase (%)

2.2

Region

Canada

June 2019 (%)

1.47

In 5 Yrs (%)

2.90

In 10 Yrs (%)

3.20

5 yr Increase (%)

1.4

10yr Increase (%)

1.7

Region

Germany

June 2019 (%)

-0.33

In 5 Yrs (%)

0.90

In 10 Yrs (%)

1.40

5 yr Increase (%)

1.2

10yr Increase (%)

1.7

Region

France

June 2019 (%)

-0.01

In 5 Yrs (%)

1.15

In 10 Yrs (%)

1.55

5 yr Increase (%)

1.2

10yr Increase (%)

1.6

Region

Italy

June 2019 (%)

2.10

In 5 Yrs (%)

2.15

In 10 Yrs (%)

1.85

5 yr Increase (%)

0.1

10yr Increase (%)

-0.2

Region

Spain

June 2019 (%)

0.39

In 5 Yrs (%)

1.55

In 10 Yrs (%)

1.80

5 yr Increase (%)

1.2

10yr Increase (%)

1.4

Region

Japan

June 2019 (%)

-0.16

In 5 Yrs (%)

0.40

In 10 Yrs (%)

0.70

5 yr Increase (%)

0.6

10yr Increase (%)

0.9

Region

Switzerland

June 2019 (%)

-0.55

In 5 Yrs (%)

0.85

In 10 Yrs (%)

1.25

5 yr Increase (%)

1.4

10yr Increase (%)

1.8

Region

UK

June 2019 (%)

0.83

In 5 Yrs (%)

2.50

In 10 Yrs (%)

2.75

5 yr Increase (%)

1.7

10yr Increase (%)

1.9

Region

China

June 2019 (%)

3.23

In 5 Yrs (%)

3.50

In 10 Yrs (%)

3.60

5 yr Increase (%)

0.3

10yr Increase (%)

0.4

Fixed income 5- and 10-year expectations

Sector

Sector

Region

Region

5-Year Expected Return Local (%)

5-Year Expected Return Local (%)

10-Year Expected Return Local (%)

10-Year Expected Return Local (%)

Local Standard Deviation (%)

Local Standard Deviation (%)

5-year Expected Return in USD Hdg (%)

5-year Expected Return in USD Hdg (%)

10-year expected return in USD Hdg (%)

10-year expected return in USD Hdg (%)

Hedged standard deviation (%)

Hedged standard deviation (%)

Sector

Government 
Bonds

Region

US

5-Year Expected Return Local (%)

1.0

10-Year Expected Return Local (%)

2.0

Local Standard Deviation (%)

4.6

5-year Expected Return in USD Hdg (%)

1.0

10-year expected return in USD Hdg (%)

2.0

Hedged standard deviation (%)

4.6

Australia

0.1

0.8

5.8

0.8

1.1

5.8

Sector

 

Region

Canada

5-Year Expected Return Local (%)

0.2

10-Year Expected Return Local (%)

1.4

Local Standard Deviation (%)

5.8

5-year Expected Return in USD Hdg (%)

0.5

10-year expected return in USD Hdg (%)

1.6

Hedged standard deviation (%)

5.8

Sector

 

Region

Eurozone

5-Year Expected Return Local (%)

-0.8

10-Year Expected Return Local (%)

0.0

Local Standard Deviation (%)

6.5

5-year Expected Return in USD Hdg (%)

1.6

10-year expected return in USD Hdg (%)

2.1

Hedged standard deviation (%)

6.5

Sector

 

Region

Japan

5-Year Expected Return Local (%)

-1.0

10-Year Expected Return Local (%)

-0.5

Local Standard Deviation (%)

8.3

5-year Expected Return in USD Hdg (%)

1.3

10-year expected return in USD Hdg (%)

1.7

Hedged standard deviation (%)

8.3

Sector

 

Region

Switzerland

5-Year Expected Return Local (%)

-3.1

10-Year Expected Return Local (%)

-1.4

Local Standard Deviation (%)

6.1

5-year Expected Return in USD Hdg (%)

-0.3

10-year expected return in USD Hdg (%)

1.0

Hedged standard deviation (%)

6.1

Sector

 

Region

United Kingdom

5-Year Expected Return Local (%)

-2.1

10-Year Expected Return Local (%)

0.1

Local Standard Deviation (%)

8.1

5-year Expected Return in USD Hdg (%)

-0.7

10-year expected return in USD Hdg (%)

1.0

Hedged standard deviation (%)

8.1

Sector

 

Region

Global Government

5-Year Expected Return Local (%)

-0.2

10-Year Expected Return Local (%)

0.7

Local Standard Deviation (%)

5.6

5-year Expected Return in USD Hdg (%)

1.2

10-year expected return in USD Hdg (%)

1.9

Hedged standard deviation (%)

5.6

Sector

Other

Region

US Corporates

5-Year Expected Return Local (%)

1.4

10-Year Expected Return Local (%)

2.8

Local Standard Deviation (%)

6.7

5-year Expected Return in USD Hdg (%)

1.4

10-year expected return in USD Hdg (%)

2.8

Hedged standard deviation (%)

6.7

Sector

 

Region

US High Yield

5-Year Expected Return Local (%)

3.7

10-Year Expected Return Local (%)

4.5

Local Standard Deviation (%)

11.1

5-year Expected Return in USD Hdg (%)

3.7

10-year expected return in USD Hdg (%)

4.5

Hedged standard deviation (%)

11.1

Sector

 

Region

US TIPS

5-Year Expected Return Local (%)

1.5

10-Year Expected Return Local (%)

2.3

Local Standard Deviation (%)

5.3

5-year Expected Return in USD Hdg (%)

1.5

10-year expected return in USD Hdg (%)

2.3

Hedged standard deviation (%)

5.3

Sector

 

Region

EMD Hard Currency

5-Year Expected Return Local (%)

4.5

10-Year Expected Return Local (%)

4.6

Local Standard Deviation (%)

6.0

5-year Expected Return in USD Hdg (%)

4.5

10-year expected return in USD Hdg (%)

4.6

Hedged standard deviation (%)

6.0

Sector

Cash

Region

3-Mo Libor

5-Year Expected Return Local (%)

2.4

10-Year Expected Return Local (%)

2.5

Local Standard Deviation (%)

1.4

5-year Expected Return in USD Hdg (%)

N/A

10-year expected return in USD Hdg (%)

N/A

Hedged standard deviation (%)

N/A

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