Global Forces At Work

Global yields have started the new year lower, as the yield of the S&P Global Developed Sovereign Bond Index was  1.05% as of Jan. 5, 2015.  The index did touch a low of 0.94% at the end of November before bouncing up to close 2014 at 1.08%.  Looking back 10 years, the yield was as high as 3.74% in July 2007.  For 2014, the total return of the index was 7.09%.

European sovereign bonds, as measured by the S&P Eurozone Developed Sovereign Bond Index, returned 12% for 2014.  The yield of this index as of Jan. 5, 2015, was 0.97%, a historic low given the available index history.  The bond rally and forex drop in value have been driven by fears of deflation and speculation that the European Central Bank will need to continue, if not increase, the purchasing of debt to stimulate the region’s economy.

The S&P/BGCantor Current 10 Year U.S. Treasury Index closed 2014 returning 11.10% for the year.  Similar to the global picture, the yield of the index began the year at 3.03% and closed the year at a 2.22%.  Since Dec. 31, 2014,  the yield of this index has moved down to 2.04% as of Jan. 5, 2015.  The slowing global economic growth and deflationary forces are driving overall demand for debt.  The increasing strength of the U.S. economy and the Fed’s message of higher rates are being overshadowed by the bigger global picture.

The S&P U.S. Issued Investment Grade Corporate Bond Index outshined the lower-credit S&P U.S. Issued High Yield Corporate Bond Index, as the search for yield remained important throughout the year, but was eventually overshadowed by risk-off trades in response to the drop in oil prices.  These indices closed 2014 returning 7.71% and 2.66%, respectively.

Senior bank loans, as measured by the S&P/LSTA U.S. Leveraged Loan 100 Index, struggled throughout the year.  Continued active issuance, which added to supply, and the same energy names that were affected by the drop in oil prices in the high-yield index combined to detract from the performance of the leveraged loan sector.  The S&P/LSTA U.S. Leveraged Loan 100 Index ended 2014 with a return of 1%.
S&P Global Developed Sovereign Bond Index-Yield History


The posts on this blog are opinions, not advice. Please read our disclaimers.

Leave a Comment

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>