In a year of many surprises for investors, one of the biggest has been that interest rates have actually fallen throughout most of the developed world. In the United States, the benchmark 10-year U.S. Treasury yield has dropped from more than 3% in late December to a multi-month low of 2.6% in early March and is now around 2.7%.
It wasn't supposed to be this way. We're five years into the recovery, economic growth, although still slow, is improving, and most importantly, the Federal Reserve is tapering its quantitative easing program. These should have combined to push interest rates up.
This has all left investors wondering: why are rates still low, when will they rise and by how much, and how do I invest in this environment? Let's look at all three questions.
Why are rates still low? At least three factors have kept rates low this year. First, economic growth was much slower in the first quarter than people expected back in the fall. Of course, a lot of the apparent slowdown was the result of the unusually cold winter, which affected economic activity across a host of sectors. Inflation, too, has remained low, which mitigated any pressure on the Fed to raise rates.
But a second and perhaps more surprising factor has been the buying of bonds by pension plans. With the strong equity returns of the last 18 months or so, many of these plans, particularly corporate plans, have found themselves in a better position with respect to how funded they are to meet their obligations. As a result, they are in a position to 'de-risk,' and insulate their liability stream by buying top-rated, long-duration bonds. As such, they have sold down some of their equity holdings while buying more bonds.
Finally, and this too is probably underappreciated, there is a lack of supply of high quality bonds. Large segments of the economy have been reducing their debt (deleveraging) or at least borrowing at a slower rate. In addition, there has been improvement in the U.S. fiscal position, resulting in fewer bonds for sale.
There are longer-term factors at play, as well, including demographics. An aging population borrows less and buys more bonds, keeping rates lower than in a younger population. But in short, relatively slow growth, low inflation, more demand for bonds by institutions, with less supply all equate to lower interest rates.
When will rates rise--and by how much? Although rates have remained low this year, they are still likely to rise through the rest of the year and into next year. However, there are a couple of caveats to note: the rise will differ depending on the length of the bond (or the different 'parts of the curve,' as bond investors like to call it), and the rise will not be as much as many investors are expecting.
Short-term rates, which are controlled by the Federal Reserve, are likely to remain anchored at zero throughout the year. However, for longer-term rates, given all the factors discussed above, the rise is also going to be slower than many would expect or perhaps hope for. Practically, that means I think we end the year with a 10-year Treasury yield between 3 and 3.25.
How do I invest in this environment? Of course, this is the most important--and most difficult--question to answer. Consider where we are: Yields are likely to rise as the Fed withdraws monetary accommodation and eventually lifts short-term rates. This poses a risk for most fixed-rate instruments, particularly given the fact that the duration or rate sensitivity of a typical bond index is much higher than it was 20 years ago. At the same time, it may take years for rates to fully normalize, leaving investors still stretching to meet their income targets. Finally, after more than five years of this environment of yield paucity, there are few cheap options left.
So what to do? There is certainly no such thing as a free lunch these days when it comes to investing, but here are two themes to consider.
First is to move beyond traditional bond market proxies, which offer little yield and significant duration or rate risk thanks to low coupons. Instead consider flexible fixed income mandates that provide the advantage of looking for segments of the fixed income space with some relative value (such as emerging market hard currency bonds).
Second is to reallocate a portion of one's income-oriented portfolio away from bonds and into stocks. While equities are no longer cheap, particularly in the United States, a comparison of earnings and bond yields suggests that, at least on a relative basis, equities are still the better bargain. In addition, non-U.S. markets are generally cheaper and offer more income. On a yield basis, the S&P 500 is currently yielding slightly below 2%. At the same time, the ACWI ex U.S. is yielding a bit more than 3%, nearly a 60% premium.
Overall, investors should accept that we may be stuck in a low yield environment for some time. Yes, the first quarter was a bit of a surprise and interest rates will likely rise over the rest of the year. But even at 3% or 3.25%, the 10-year yield would be well below its 20-year average (and only about half of the 60-year average). For those looking to buy a home and need a mortgage that's probably good news. Income-oriented investors, however, will need to consider strategies that allow for the premise that yield may continue to be hard to obtain. And those who hope that interest rates will once again provide investors with a risk-free 5% yield are likely to be disappointed for some time to come.
第二，你应该将自己收益导向型投资组合的一部分从债市转移到股市之中。尽管股票价格已不如以前便宜，特别是在美国，但是据股票收益与债券收益的比较显示，至少相对而言，股票的投资成本更低。此外，非美市场普遍价格较低，而收益更高。从收益率上看，标准普尔500指数(S&P 500)目前的回报略低于2%。与此同时，美国以外国家指数基金(ACWI ex U.S.)的回报率略高于3%，较前者高出了60%。