Yield Curve’s the Biggest Fixed Income Story of 2019

Market Blog

The inverted yield curve was the biggest story of 2019 in the bond market. Historically, when long-term bond yields fall below short-term yields, as the 2- and 10-year Treasury yields did in August, recessions have tended to follow, though with wildly varying lead times. Thankfully, the yield curve has normalized since then as the 10-year yield has rallied.

“The recent steepening of the Treasury yield curve is an encouraging sign for the U.S. economy and markets,” said LPL Chief Investment Strategist John Lynch. “Continued calmness in the credit markets suggests this popular recession signal may have given us a false positive this time around.”

An honorable mention for the biggest bond market story of 2019—and one of the reasons the yield curve inverted—is the massive mountain of negative-yielding sovereign debt amid unprecedented accommodation from global central banks. Negative-yielding sovereign debt reached $17 trillion in August 2019 before rising yields globally whittled the total down to $11.3 trillion as of December 31, 2019. Progress toward normalization of global monetary policies and bond markets will be a key trend to watch in 2020.

Against this backdrop, fixed income still delivered a lot of winners in 2019. The Bloomberg Barclays U.S. Aggregate Bond Index, the domestic bond benchmark we track, returned 8.7% for the year. Both investment-grade and high-yield corporate bonds delivered impressive double-digit returns, while even the weakest bond sectors we track posted respectable gains, as shown in the LPL Chart of the Day.

Many-Winners-In-Fixed-Income-In-2019

Happy New Year! We wish you all a healthy, happy, and prosperous year ahead. Thank you for reading our daily LPL Research blog.

 

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (Member FINRA/SIPC).  Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered investment advisor, please note that LPL is not an affiliate of and makes no representation with respect to such entity.

If your advisor is located at a bank or credit union, please note that the bank/credit union is not registered as a broker-dealer or investment advisor. Registered representatives of LPL may also be employees of the bank/credit union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union. Securities and insurance offered through LPL or its affiliates are:

Not insured by FDIC or NCUA/NCUSIF or Any Other Government Agency | Not Bank/Credit Union Guarantee | Not Bank/Credit Union Deposits or Obligations| May Lose Value

Member FINRA /SIPC

For Public Use | Tracking #1-932906