Chart of the week

Global fixed income plummets as policy tightens

As policymakers reset rate expectations, this week’s chart looks at falling performance across the U.S. and Global Agg Indexes.

September 9, 2022 | 2 minute read

Fixed income performance vs. bond market volatility

Source: Bloomberg Finance, L.P. Agg and Global Agg refer to the Bloomberg U.S. and Global Aggregate Bond Indexes, respectively.  MOVE refers to the ICE BofAML U.S. Bond Market Option Volatility Estimate (MOVE) Index. As of September 7, 2022.

  • Fed Chair Powell’s decidedly hawkish August 26 speech in Jackson Hole quickly reset market expectations. Prior to the meeting, markets had priced in Fed rate hikes through year end before quickly easing in early 2023.
  • Rates in the U.S. and other developed countries have been volatile since Powell’s speech but have generally trended higher. The MOVE index, which measures volatility expectations for the Treasury market, has been on the rise, again nearing its two-year highs.
  • 2-year Treasury yields have climbed to their highest point since 2007 (approximately 3.49%) while yields on other developed countries have followed suit.1
  • Amid rising rates, the Bloomberg Global Aggregate Index (orange line) has fallen -20.7% from its 2021 peak, a rare bear market (down 20% or more) for fixed income investments while the U.S. Agg. Index (black line) is down -12.5% from its 2021 peak, marking its longest drawdown ever and largest since 1980.1
  • With U.S. and global policymakers reiterating their determination to stamp out inflation, traditional fixed income may continue to face headwinds through year end. With this in mind, investors would be wise to seek alternatives that have an ability to generate income and total return potential even within a rising rate environment.

  • Bloomberg Finance, L.P., as of September 7, 2022.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

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