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 | 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 |
