Managing assets within a defined benefit pension plan to match or beat liabilities is distinctly different from managing to a total-return mandate. While portfolio diversification is a good idea when managing to a total-return mandate, it can be counterproductive when managing against liabilities ev...

Jonathon Costello explores how Australian investment-grade credit may be an attractive option for investors seeking defensive income profiles with limited...

At Western Asset, we have developed an innovative quantitative model to assess corporate credit risk over a...

Here we discuss how certain demographic trends will be a significant secular challenge and provide a supportive backdrop...

Our view is that rates will eventually move lower as inflation declines gradually and signs of weakness in sectors like small business, housing, services and trade hint at softening...

Here we explore the effects of emissions pledges by countries on bond portfolios and the possibility of net-zero alignment through...

Western Asset Product Specialist Jeff Helsing engages in a detailed discussion with Blair Faulstich of Benefit Street Partners and Christopher Jacobs of Western Asset. Together, they explore the evolving landscape of private and public...

Product Specialist Robert Abad converses with Head of Investment Management (Asia ex-Japan) Desmond Soon and Portfolio Manager Desmond Fu about Western Asset’s latest views on the Asia local bond market and select investment opportunities in...

The COP28 climate summit established ambitious emissions reduction targets and called for a major expansion of...

Treasury bonds rallied sharply in the fourth quarter of last year but have since sold off as the consensus narrative changed to view inflation as still high...

Here we describe the securitization process of residential mortgage loans into agency MBS, the differentiated features of the asset class and the types of agency MBS available in...

Product Specialist Robert Abad converses with Portfolio Manager Kevin Ritter and Research Analyst Kevin Zhang about supranational bonds, a burgeoning segment within the emerging market (EM) local debt universe, and what opportunities exist...

Western Asset Co-CIO Ken Leech discusses how cooling inflation will likely mark the end of the Fed's tightening campaign, but economic softening ahead may require rate cuts to manage...

After 2021's inflation surprise, we now see inflation declining back toward the Fed's target range. Recent monthly inflation rates are near 2% if you exclude housing data distortions. Supply recoveries and policy reversals drove disinflation without a recession, indicating...

The physical risks related to climate change have far-reaching implications for bond issuers and investors. Here we discuss our approach to modeling and estimating...

As we saw in the great inflation unwind of the 80s, the disinflation process can remain uneven, and take time. Current market sentiment is that improvement in inflation has run its course, but may follow a similarly...

With inflation coming down and the economy softening, we think the Fed is in a position to pause its rate hikes. We understand, however, why investors may remain reasonably nervous about potential downside economic risks and upside yield risks given the Fed’s “hawkish...

In this Q&A, Product Specialist Jeff Helsing converses with Portfolio Manager Simon Miller, Research Analyst Ivor Schucking and Product Specialist/Economist Michael J. Bazdarich about Western Asset’s bottom-up and top-down views, particularly regarding headwinds to commercial mortgages and regio...

Markets are definitively forward-looking. The Fed, however, enacts monetary policy that has long and lagged effects. The monumental Fed stimulus deployed to address the Covid crisis is now well behind us, as is the supportive...

In a world with an ever increasing focus on the human impact of climate change, corporate bond issuers are encouraged to reduce their carbon emissions. Here we explore an approach to assess the potential risks for corporate bond issuers, with modeling built to estimate future corporate default proba...

Approaching short-term investing with specific time horizons assigned to different segments of cash can help corporate cash investors balance the competing priorities of preserving capital, maintaining needed liquidity and generating...

After a tumultuous 2022 that saw extreme volatility across risk assets and a breakdown of the traditional correlations between bonds and stocks, we’re providing both a review and outline of what we see ahead for our US Broad Market portfolios. While last year was humbling, we have been in this posit...

While this may have been the worst year for bonds since the Great Depression, bear markets do provide the benefit of restoring value. Despite yields on almost all fixed-income sectors being at one- or two-decade highs, investors continue to fear the worst. The risk of central bank overtightening rem...

Our expectation for a moderation in US inflation has been extremely challenged over the last year. However, we are not ready to concede that a falling-inflation scenario will arrive in the not-too-distant future to provide some comfort and respite to bond investors. Here we present the evidence supp...

Inflation in the US is finally on the downswing. The Fed’s consistent message that it will continue to tighten policy was reinforced yet again in Jackson Hole earlier this month. Global growth has diminished this year and appears to be on a slower path ahead. The challenge facing central bankers now...

US inflation today is the worst since that of the late-1960s and 1970s, but the current experience differs from that previous period in important respects. Unlike 55 years ago, the current inflation has emerged without any true boom in US growth. Similarly, real wages and real incomes are declining,...

Natural capital is the term used to describe natural resource assets and services that contribute to economic production. These natural resource assets can typically be categorised under four broad categories: Agriculture, Biodiversity, Fisheries & Aquaculture, and Ecosystems & Forests. Natu...

We’ve just witnessed a severe disruption to the disinflation trend that’s been in place for the better part of 40 years in developed markets. Both the war in Ukraine and ongoing Covid lockdowns have amplified the tailwinds that limit global growth. The Fed’s hawkish pivot, intended to tame elevated ...

Fixed-income markets faced many challenges in 1Q22 amid ongoing macro developments, but our outlook for the broader global economy is benign. While central bank paths differ, we believe global growth and inflation will moderate later this year and that the backdrop will be supportive for credit mark...

Incorporating climate change impacts into investment risk analysis is a problem that merits timely and rigorous attention. Analyzing climate risk in a financial context is no easy task. We investors are in our infancy in terms of incorporating insights from climate science about the future of our pl...

With inflation reaching levels not seen in 40 years, rising prices are demanding attention from investors and consumers alike. However, the underlying forces responsible for rising inflation may not be widely understood. Michael Bazdarich offers his insights on these forces, by way of an in-depth an...

Oil prices recovered significantly during 2021, primarily due to the reopening of economies that had been shut down due to the Covid pandemic. Western Asset Research Analysts René Ledis and J. Gibson Cooper spoke with Product Specialist Robert Abad to drill down on their analysis and outlook for oil...

Asset owners are increasingly focused on the need to manage assets sustainably. A survey conducted by FTSE Russell found that 84% of asset owners globally are either implementing or evaluating sustainability in...

Separately managed accounts are professionally managed investment portfolios that can be tailored to a short-term investor’s individual return objectives, risk tolerance and other...

Investors in money market funds are now confronted with near record-low yields. At the same time, investors in Core bond strategies may have concerns regarding how further inflation may impact higher...

Encouraged by the improvement in global vaccination rates, our strongest conviction is that the war against Covid will be won. We expect global central banks to be extraordinarily judicious in removing monetary accommodation, given the concerns driven by inflation, unemployment and...

Against a backdrop of persistent Covid uncertainty and the recent disastrous developments in Afghanistan, markets have remained mostly tranquil. Our outlook continues to call for a return to pre-pandemic trend lines for both global growth and interest rates, as we are optimistic that broad vaccinati...

On October 28, 2020, the US Securities and Exchange Commission (SEC) adopted Rule 18f-4, which governs the use of derivatives and certain financing transactions by US mutual funds. The Rule emerges after almost a decade of gestation, and changes a framework that has been in place...

A collateralized loan obligation (CLO) is a portfolio of bank loans that is securitized and actively managed like an...

Our base case has been one of reopening optimism, which was upgraded meaningfully when vaccines first became available. Vaccines are now making their way around...

While the performance of mortgage and consumer credit has been challenged by the ripple effects of COVID-19 restrictions and the related uncertainty of the economic outlook—along with the lack of direct policy support that has benefited other credit sectors—we remain optimistic for improved...

The simple and primary message of liability-driven investing (LDI) is that it strives to match the return on pension plan assets with those of the plan’s liabilities. However, that basic principle often gets lost in discussions about today’s...

Agency mortgage-backed securities (MBS) play an important role in investors’ overall fixed-income portfolios. Benefits include cash flow guarantees by US government agencies, a large universe for security selection, potential for attractive risk-adjusted returns and...

Western Asset conducted a study investigating the relationship between ESG ratings and subsequent bond returns for various...

As the acute phase of the monetary policy response to COVID-19 appears to have ended, we review and summarize in this paper key actions global central banks took to influence aggregate demand and fulfill their responsibilities as lenders of...

There has been a wave of speculation recently about the inevitability of rising inflation, given the enormous amount of both fiscal and monetary stimulus unleashed to counter the ill effects of COVID-19’s...

Western Asset CIO Ken Leech explains that many market participants are now exceeding our level of optimism, pricing in outcomes that indicate problems are behind us and the path to growth and prosperity...

China’s local currency bond market is now the second largest bond market in the world, just behind that of the US, with approximately US$15 trillion in...

Investors who utilize derivatives should be aware of the uncleared margin rules (UMR) that apply to investments not subject to...

While the performance of mortgage and consumer credit has been challenged by the ripple effects of COVID-19 restrictions and the related uncertainty of the economic outlook—along with the lack of direct policy support that has benefited other credit sectors—we remain optimistic for improved...

Western Asset CIO Ken Leech discusses the impact that the recent news of successful vaccines is having on the investment outlook and our...

GMS portfolios were positioned at the start of the year to benefit from steady US growth, a moderate rebound in eurozone growth overall and an acceleration in EM...

MAC portfolios were not immune to the jolt of the market shocks driven by COVID-19 seen earlier...

With so much at stake, the 2020 US presidential election could have far-reaching implications for...

Western Asset CIO Ken Leech describes why we are cautiously optimistic that a global economic recovery is beginning to...

Following a sharp recovery in risk assets in Q2, there have been several relevant developments in credit markets over the past...

Western Asset CIO Ken Leech explores the implications of uncertainty on investing in the age...

In January 2020, as COVID-19 spread in China, Western Asset assembled a cross-disciplinary task force to analyze the virus and its threat to the...

In this period of uncertainty, MAC portfolios stand ready to capture any exceptional value opportunities as...

Western Asset CIO Ken Leech reviews developments affecting the global economy and our investment outlook, paying special attention to global...

The evolution of the automotive industry is accelerating as the popularity of electric vehicles spreads—fueled by the desire to cut emissions—and as the promise of self-driving cars moves closer to becoming...

With negative interest rates becoming more commonplace in Japan and Europe, we think it’s only a matter of time before they reach...

The Fed defied nearly all expectations in 2019 when it cut rates three times, shaving 75 bps off the fed funds rate. Early last year, Western Asset had suspected the Fed might increase its focus on inflation, which would eventually require easier...

China’s local onshore bond market is now the second largest bond market in the world, behind the US with approximately US$13 trillion in...

Asset-backed securities (ABS)—such as credit card receivables, auto loans and leases, and student loans— can be an excellent fit for short-term fixed-income portfolios, as they seek to preserve principal, maintain adequate liquidity and generate a...

Western Asset CIO Ken Leech compares our investment outlook from earlier in the year with the market’s results. We had expected US and global growth to be resilient and central banks to provide further accommodation, and both themes have played out. Consequently, we’ve seen sharp outperformance in...

LIBOR is one of the most important interest rates in the world, with financial products of about $200 trillion tied to its benchmark rate. But LIBOR is being phased out in 2021 and the transition to a new reference rate will be a major undertaking for financial institutions great...

Liability driven investing for defined benefit pension plans requires a different perspective than most other investing. Because DB plan sponsors must aim to have their plan’s assets eventually provide sufficient returns to match their plan’s liabilities, the traditional investment risk hierarchy is...

Faced with stubbornly low inflation that has failed to reach the Fed’s 2% target for any meaningful period of time, Fed officials are tweaking the Fed’s reaction function. The Fed is becoming more focused on realized inflation and more growth oriented than at any time in the past...

Western Asset CIO Ken Leech describes how drastically the investment backdrop has changed over the last quarter. Downside risks continued to escalate and manifested in the form of persistently weak inflation, the buildup of negative-yielding debt and protracted...

The expansion phase of the current global credit cycle has been ongoing for the last ten years, making it one of the longest in history. While many have been calling for it to falter, we take a different view. Within the greater cycle are smaller “mini-cycles” and the indicators that may flash warni...

Corporate cash investors must continually balance the competing priorities of preserving capital, maintaining needed liquidity and generating adequate returns. They can better achieve each of these goals by assigning specific investment time horizons to discrete segments of their short-term investab...

While yield curve inversions have been the supreme recession signal, we believe the yield curve is not truly inverted right now. The Fed’s recent pivot from rate-hiking to likely rate-cutting has reduced the chances of a...

With inflation running well below 2% for nearly all of the current economic expansion, and declining further recently, we expect the Fed to take action and cut rates. This paper describes why we believe the low-inflation backdrop and outlook should provide sufficient foundation for a rate cut...

There have been a number of crosscurrents in recent communications from the Fed. Fed officials have expressed concern about the long-term outlook, optimism about the short-term outlook, and a heightened sense of caution about...

The prospect of a more ominous and long-lasting global trade war has ratcheted higher following the Trump Administration’s decision to impose a new round of tariffs on Chinese and...

Western Asset CIO Ken Leech revisits the most prominent economic factors affecting the Firm’s investment outlook, including growth in the US, China and the eurozone. He reviews the latest messaging from the Fed, which declared its “overarching goal” is to extend...

Brazilian President Jair Bolsonaro took office on January 1, 2019 with ambitions to revive the country’s economy. His administration faces significant headwinds, especially with the country’s public...

Banks in the US and Europe experienced a very tough period during the great financial crisis that started in 2008. Since then, however, bank earnings and profitability have rebounded significantly. Still, investors and rating agencies continue to be...

Western Asset’s approach to building customized client solutions includes robust interaction with clients, thorough risk management processes that leverage our proprietary WISER system as well as continuous and comprehensive analysis. Our goal is to compile the resources that can best help us unders...

In reaction to global recession fears and other country-specific idiosyncratic factors, core government bond yields in the eurozone are depressed well below our estimate of fair value. Evidence is building that several of these negatives are beginning to wane. We also believe that global slowdown co...

The Fed is embarking on a review of its policy strategy, tools and communications practices. Part of this effort includes a public relations exercise of scheduled events called “Fed Listens” that we think is unlikely to result in any...

Western Asset CIO Ken Leech updates his views on the progress of the global economic recovery, including his thoughts on growth, inflation and the need for continued monetary policy support. He examines Fed officials’ recent messaging, which reinforces their decision to pause any...

As ESG discussions become more widespread among investors, Global Head of ESG Investments Bonnie Wongtrakool and Research Analyst Wontae Kim provide a thoughtful analysis of Indonesia. This case study examines—and ranks—Indonesia through an ESG lens using Western Asset’s “ESG factor assessment” meth...

In this brief paper, Western Asset Quantitative Analyst Rolf E. Lundelius, PhD, explains the significance and implications of the recent elimination of new pre-refundings of municipal bonds. The provision was eliminated by the Tax Cuts and Jobs Act of 2018, effective January...

The protracted debates around the Brexit scenario continue unabated. Here we explore the three primary outcomes (“deal”, “extend” or “no deal”) and the market implications of each. Generally, our base case is for a “deal” under which Parliament ultimately supports the UK government’s plan, leading t...

After a series of Fed communications that largely confused market participants last year, the Fed is revisiting its inflation targeting methodology. While it hasn’t declared its new strategy yet, we suspect the Fed will adopt a “wait-and-see” approach as it relates to realized inflation data, rather...

As 2018 draws to a close, we wanted to offer this high-level summary of our views for the year ahead. This is of course a snapshot of this moment in time wherein we describe some of the most significant matters of interest for fixed-income investors. The “Big Picture” table that begins on page 4 pro...

This year’s early expectations for synchronized growth were dashed rather quickly. Instead, we have seen 2018 become the year of the most desynchronized global growth since 1998. The US economy, supercharged with late-cycle stimulus, has gone from strength to strength; the rest of the world, challen...

Fannie Mae and Freddie Mac will be making important changes to how their mortgage-backed securities (MBS) are issued, effective June 2019. As these changes may affect investors’ related MBS investments, this note describes the rationale for the change, how UMBS investments will work after the effect...

We sat down with Portfolio Manager and Head of Global Investment-Grade Credit Ryan Brist and Product Specialist James So to discuss general concerns over deterioration of the domestic credit market and specific concerns about the growth of the BBB quality cohort. Ryan and James also delve into histo...

This note describes our current outlook for the eurozone and includes an analysis of economic growth, inflation and expectations for European Central Bank (ECB) policy. We explore how these factors influence our strategic underweight duration stance in core European...

The Federal Reserve Open Market Committee (FOMC) responded to better than expected US growth by raising interest rates in June. The most recent economic data has generally maintained its firm tone. The FOMC will accordingly raise rates at the upcoming September meeting and potentially again in Decem...

At Western Asset we receive requests regarding our thoughts on the credit cycle almost every day. We published our opinions in a paper earlier this year titled, Where Are We in the Credit Cycle? In that paper we argued that credit markets remained squarely within the expansion phase. In this note, ...

The move to replace LIBOR is being driven by a couple of primary factors, and has been a long time coming. In this note, Western Asset Product Specialist Tom McMahon discusses these factors and explains the roots of the international investigation into LIBOR, its possible replacement, why the chang...

In this brief note, we describe Western Asset’s framework for incorporating environmental, social and governance (ESG) factors into our sovereign analysis. Our goal is to help readers understand how we approach sovereign ESG investing and how ESG can complement “traditional” sovereign investment ana...

Market participants are increasingly concerned that the Trump Administration’s ongoing tariff crusade against China and other global trading heavyweights might be the tinder that could ignite a full-blown trade war. While such a risk should not be underestimated, we are cautious about leaping to any...

There is no doubt that we have been living through an extraordinary period of economic stability, characterised by low but stable global growth and fueled by central bank largesse, persistently low or even negative interest rates and a seemingly insatiable appetite for risk assets. Given this extend...

The recent volatility spike in developed markets (DM) rates has rippled onto both hard currency and local currency emerging markets debt (EMD). Not to be dismissive of market spillover, but we do not view the broad market rout as sufficient basis to steer away from our strategic course. To be sure, ...

The uneven nature of the global recovery has reared its ugly head again. The optimism for a global synchronized recovery at the beginning of the year has given way to anxiety over potential emerging markets (EM) or European crises. The divergence in performance between the US bond market and markets...

As exemplified by the Chinese characters “危机”, danger is simultaneously a warning and an opportunity for investors who have the experience, resources and courage to exploit them. Western Asset has investment professionals from three countries serving global investors in the Asia Pacific region. ...

An overweight to US rates has been a high-conviction position for Western Asset this year. The position is based on three related views: US growth would not accelerate materially, inflation risks would continue to be to the downside and the Federal Reserve’s (Fed) reaction function would be less haw...

We sat down with Lead Portfolio Manager and Deputy Chief Investment Officer Michael Buchanan and Product Specialist Robert Abad to discuss the Western Asset Multi-Asset Credit (MAC) strategy. Since its inception in 2010, this unconstrained strategy has sought to maximize income and expected total re...

In response to the great financial crisis that culminated in 2008, central banks around the world sprang into action to provide liquidity and to calm markets with large-scale asset purchases. Now, as the world economy stabilizes a decade later, the three largest central banks—the US Federal Reserve ...

A key question asked by many clients today—aside from where bond yields are headed—is regarding where we think the US dollar is headed. This is an important question as the returns of any fixed-income portfolio with developed or emerging markets (EMs) currency exposure will be inextricably linked to...

Recent developments have raised the specter of a “trade war” with China and concerns about the attendant consequences. At this point, such concerns have perhaps run ahead of the actual developments. The tariffs on Chinese goods have not yet been implemented, and they are subject to a lengthy review ...

In our recent paper, ESG Essentials: What You Need to Know About Environmental, Social and Governance Investing, we discussed the surge in interest in ESG, the range of ESG investment styles and investor motivations for adopting ESG. As we explained in that paper, investors define1 ESG in a variety ...

The level of discourse around the value of Environmental, Social and Governance (ESG) investing has increased in recent years, leading many to consider whether and how to incorporate ESG across their own portfolios. Generally, ESG investing aims to increase “responsible investments” by factoring ESG...

Successful portfolio construction involves not only the selection of superior securities and investment themes, but also the assessment of the ranges of outcomes of the portfolio’s exposures. The best portfolios carefully balance risk and reward. An important part of assessing portfolio risk is the ...

Various Federal Reserve (Fed) policymakers expect US inflation to accelerate in 2018, and financial market analysts generally agree with them. Of course, these same folks predicted rising inflation in previous years as well. It didn’t happen then, and we think it is unlikely to happen in 2018. It is...

A little under two years ago the market and academic financial commentary were focusing on “secular stagnation.” This was the idea that global growth and inflation were so constrained by secular forces that policymakers and investors should focus on the need to protect against the persistence of dow...

In recent years we have seen a marked increase in client interest for global bonds, reflecting the potential investment return and diversification benefits available outside of domestic markets. This brief overview reviews how Western Asset approaches global bond investing—supported by our enduring ...

The transition from Janet Yellen to Jerome Powell as chair of the Federal Reserve (Fed) is happening at an interesting moment for financial markets and the US economy. Two topics in particular have recently come to the fore of investors’ minds: the potential for an increase in inflation and the curr...

In this Q&A, Western Asset Portfolio Manager and Research Analyst John Bellows discusses the outlook for growth and inflation, the impact of recent tax cuts, the maturity of the current business cycle and where to find value in the market when everything seems...

The US mortgage market has evolved significantly in response to the subprime mortgage crisis. The crisis was the direct result of an inflated housing market fueled by a credit bubble in mortgage lending, with subprime lending defining its pinnacle. We see neither of these conditions present today; h...

In the timeless folktale Chicken Little, while tending to her garden an acorn drops on Henny Penny’s head and she declares, “Goodness gracious, the sky is falling!” As it turns out, the sky did not fall but that mattered little to the duck and goose who met with a tragic end after Henny led them to ...

The experience of investing in emerging markets (EM) local debt during the period from 2013 to 2015 was analogous to that of peeling an onion. It was not for the faint of heart; as layers were removed, it was a constant battle to hold back tears. Investors during that period truly experienced a “per...

On November 2, President Donald Trump named Jerome Powell the next Chair of the Federal Reserve (Fed) Board, succeeding Janet Yellen. This confirmed our thesis that the Trump Administration would be looking for Fed candidates who were 1) pro-growth, 2) comfortable with low short-term interest rates,...

The old adage in real estate is that the three most important considerations when determining a property’s value are location, location and location. The conventional wisdom when it comes to investment management is that asset allocation is the single largest contributor to long-term returns—somethi...

In this Q&A, Western Asset’s Head of the Tokyo Investment Team, Kazuto Doi, addresses questions about our Currency Alpha strategy. He explains how this currency-focused strategy aims to generate a competitive positive return, irrespective of the market environment for global...

Global financial regulation continues to evolve and shape the behavior of investors. For the insurance industry in Europe, the impact of Solvency II—which sets forth guidelines concerning the amount of capital that insurers must hold to reduce the risk of insolvency—continues to permeate. Recently, ...

The daily barrage of headlines on tax reform can be dizzying. Rather than attempting to anticipate every twist and turn—a mug’s game if ever there was one—investors may do better taking a broader perspective. This note is an attempt to do just that. We first take a view on the chances of tax reform ...

Currently, when crafting LDI solutions for defined benefit (DB) schemes, the pension community tends to focus attention on matching the duration of assets with liabilities. In our recent LDI Insights, Duration Is a ZIP Code, Not an Address, my colleague Mike Bazdarich explains precisely why this is ...

Introduction The financial industry in Europe is about to change. Stricter oversight regulation intended to enhance investor protection, preserve market integrity and improve overall transparency will become effective on 3 January 2018. The new regulation is known as MiFID II—the sequel to the exist...

Today the Federal Open Market Committee (FOMC) announced a reduction in its reinvestment of maturing bonds. Most of the details have been out for a while, and all that really happened today was making the plan official by including it in the FOMC statement. Western Asset has written extensively on t...