Creativity in a Low Yield Era

Get More From Your Fixed Income Allocations

Creativity in a Low Yield Era

Get More From Your Fixed Income Allocations

Despite a prolonged period of low yields, there are still compelling opportunities for fixed income investors who know where to look.

How can you capitalize on those opportunities while avoiding unnecessary risks? We believe our strategic investing approach can provide a distinct advantage. 

Put our expertise to work. 

Over 75% of our mutual funds with a 10-year track record have outperformed their 10-year Lipper average as of 3/31/21

Over the past 50 years, T. Rowe Price has built a substantial global presence in fixed income investing with over $172.8 billion in assets under management.2 Our strategic investing approach, coupled with prudent risk management have delivered strong results over time. 

Actionable Insights

Navigating the Challenge of Rising Rates

2021 Global Market Outlook: Managing to the Other Side

Fixed Income Plus Sectors: Opportunities and Risks
Three Critical Questions Facing Fixed Income Investors in 2021

Cash Alternative

Shorter duration bonds versus money market funds

Nearly double the returns…

12/31/2010 to 12/31/2020

Ultra Short-Term Bonds (Bloomberg Barclays Short-Term Government/Corporate Index)
…for a comparable level of volatility

12/31/2010 to 12/31/2020

Money Market Funds (Lipper U.S. Government Money Market Index)

Past performance is not a reliable indicator of future performance. Index performance is for illustrative purposes only and is not indicative of any specific investment. Investors cannot invest directly in an index.

*Standard deviation indicates the volatility of a portfolio’s total returns as measured against its mean performance.

You could lose money by investing in a money market fund. Although money market funds seek to maintain a price of $1.00 per share, it cannot be guaranteed. Money market funds may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund's liquidity falls below required minimums because of market conditions or other factors. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. A money market fund's sponsor has no legal obligation to provide financial support to the fund, and investors should not expect that the sponsor will provide financial support to the fund at any time.

Factors such as money market reforms and persistently low interest rates have significantly limited money market fund returns for investors. One potentially attractive cash alternative: ultra short-term bond strategies. Compared with money market funds, ultra-short-term bond strategies have the potential to deliver a higher return while still offering high to moderate levels of liquidity. However, in exchange for this higher yield potential, investors must also be prepared to take on fluctuations in principal value and more interest rate risk and credit risk than they would investing in money market funds.


U.S.-only fixed income portfolios may have missed out

As of December 31, 2020

10-Year USD-Hedged Sovereign Bond Yields

Past performance is not a reliable indicator of future performance.

Source: Bloomberg. Please refer to the additional disclosures for further source information.

Diversification within fixed income can be just as important as broader portfolio diversification. Consider incorporating fixed income opportunities outside the U.S. as bonds outside the U.S. have historically tended to appreciate in relative value as the dollar weakens.


Floating rate bank loans have delivered high relative yields

As of December 31, 2020

Floating rate bank loans are driving high, relative yields

Past performance cannot guarantee future results.

**Tax-equivalent yields using a tax rate of 40.8% (highest marginal bracket of 37% + 3.8% net income investment tax).

***The term duration refers to how long it takes for an investor to be repaid a given bond’s price by that bond’s total cash flows.

Sources: Bloomberg Finance L.P., T. Rowe Price, and J.P. Morgan Chase. Information has been obtained from sources believed to be reliable, but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The index may not be copied, used, or distributed without J.P. Morgan's prior written approval. Copyright © 2021, J.P. Morgan Chase & Co. All rights reserved.

Indexes used: U.S. Treasuries: BBgBarc U.S. Treasury Index; U.S. Aggregate: BBgBarc U.S. Aggregate; U.S. Corp I.G.: BBgBarc U.S.Corp. I.G. Index; U.S. High Yield: BBgBarc U.S. High Yield; EM Sovereign Hard Currency: J.P. Morgan Emerging Market Global Diversified Bond Index; EM Corporates: J.P. Morgan CEMBI Broad Diversified; EM Sovereign Local Currency: J.P. Morgan GBI EM GD Index; Global Corp I.G.: BBgBarc Global Aggregate ex-U.S. Index; Global Aggregate ex-U.S.: BBgBarc Euro Aggregate; Euro Corp I.G.. Corporates Index; Euro High Yield: BBgBarc Pan-European High Yield; Euro Aggregate: BBgBarc Euro Agg; Japan Government Bond: BBgBarc Asian Pacific Japan; Bunds: BBgBarc Global Treasury Germany; Global High Yield: BBgBarc Global High Yield; U.S. Municipals: BBgBarc Municipal Bond Index Total Return Index Value Unhedged USD: Municipals 65% HG/35% HY BBgBarc 65% High Grade/35% HY Total Return Index Unhedged USD; Bank Loans: JPM Levered Loan Index; Bloomberg Barclays Short-Term Government/Corporate Total Return Index Value Unhedged USD

With fixed income yields near historic lows – attractive levels of income have been harder to achieve. Options such as floating rate bank loans, which have historically provided among the best relative yields of any fixed income sector, may be more attractive for investors seeking higher income returns.

Interest Rate Hedge

Floating rate bank loans have historically helped hedge against rising rates

Time periods when treasury yields rose 100+ basis points

Time periods when treasury yields rose 100+ basis points

Past performance cannot guarantee future results.

Cumulative returns shown for all time periods.

Sources: J.P. Morgan Chase & Co., Bloomberg Barclays, S&P/LSTA

In addition, floating rate bank loans are the one fixed income sector that historically tended to appreciate when interest rates rise. Furthermore, they can provide higher returns than U.S. Treasury bills with a similar duration profile, and they sit higher in the capital structure than high yield bonds which can mean less losses for investors in the event of a default. 

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RIA, Regional Banks, and National Banks
Variable Annuity

164 of our 378 mutual funds had a 10-year track record as of 3/31/21. (Includes all share classes and excludes funds used in insurance products.) 124 of these 164 funds (76%) beat their Lipper average for the 10-year period. 216 of 364 (59%), 250 of 357 (70%), and 216 of 300 (72%) of T. Rowe Price funds outperformed their Lipper average for the 1-, 3-, and 5-year periods ended 3/31/21, respectively. Calculations based on cumulative total return. Not all funds outperformed for all periods. (Source for data: Lipper Inc.)

The total fixed income assets managed by T. Rowe Price Associates, Inc., and its investment advisory affiliates. Total fixed income assets include all fixed income separate accounts and funds along with a portion of certain T. Rowe Price U.S.-registered multi-asset funds as of March 31, 2021.

Additional Disclosures

Copyright © 2021, S&P Global Market Intelligence (and its affiliates, as applicable). Reproduction of any information, data, or material, including ratings (“Content”) in any form is prohibited except with the prior written permission of the relevant party. Such party, its affiliates, and suppliers (“Content Providers”) do not guarantee the accuracy, adequacy, completeness, timeliness, or availability of any Content and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such Content. In no event shall Content Providers be liable for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of the Content. A reference to a particular investment or security, a rating or any observation concerning an investment that is part of the Content is not a recommendation to buy, sell, or hold such investment or security, does not address the suitability of an investment or security and should not be relied on as investment advice. Credit ratings are statements of opinions and are not statements of fact.

Bloomberg Finance L.P.

Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively "Bloomberg"). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, "Barclays"), used under license. Bloomberg or Bloomberg's licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

Important Information

This material is provided for general and educational purposes only and not intended to provide legal, tax, or investment advice. This material does not provide recommendations concerning investments, investment strategies, or account types; it is not individualized to the needs of any specific investor and not intended to suggest any particular investment action is appropriate for you, nor is it intended to serve as the primary basis for investment decision-making.

Past performance cannot guarantee future results. All investments are subject to market risk, including the possible loss of principal. Fixed-income securities are subject to credit risk, liquidity risk, call risk, and interest-rate risk. As interest rates rise, bond prices generally fall. Investments in bonds involve more risk than a money market mutual fund, could result in the loss of principal, and are not subject to the same diversification and maturity standards. International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. Floating rate bank loans are usually considered speculative and involve a greater risk of default and price decline than higher-rated bonds. Diversification cannot assure a profit or protect against loss in a declining market.

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