GLOBAL BOND
Three-year sector performance
SECTOR ANALYSIS
The sector traded sideways over the threeyear period, posting an average 0.14% return
in US dollar terms. Top performers in the
sector typically invested into long-duration
government bonds and tended to show a
bias toward selected countries, i.e., Italy,
the UK and Japan. Funds with a strong
focus in corporates also performed well in
general, while inflation-linked bond funds
languished toward the bottom end of the
performance spectrum.
MARKET REVIEW
Source: FE Analytics (31 Mar ’13 to 31 Mar ’16)
Three-year annualised return/volatility
Global corporate bonds had a stronger
run than sovereign bonds in 2013 as
credit spreads narrowed, mainly due to an
improving macroeconomic environment,
particularly in the US. But sovereign bonds
subsequently performed better as central
banks including the ECB and BOJ continued
asset purchasing initiatives and increasing
market uncertainties drove capital into
safer-assets. While short-term sovereign
bond yields of major developed countries
stayed at very low levels, with German bunds
and JGB falling below zero, the yield curve
for these markets has generally flattened
out compared to three years ago. Inflationlinked bonds, however, stayed under
pressure amid weak inflation expectations
globally and this was further exacerbated in
2015 as energy and commodity prices fell.
MARKET OUTLOOK
Sovereign developed market bond yields
have stayed at a very low level. With
several European central banks and the
BOJ approaching negative interest rates,
short-to-medium term yields of JGB and
German bunds went into negative territory.
While these assets can be supported by the
asset purchasing program at the respective
central banks, valuation of the asset class
as a whole is not particularly attractive. As
inflation expectations subside, the returns
from inflation-linked vehicles can expect to
remain under pressure.
Provided by FE Advisory Asia as of 31 May ’16
Source: FE Analytics (31 Mar ’13 to 31 Mar ’16)