an evolving fixed income
TRANSCRIPT
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An Evolving Fixed Income Landscape?
September 2020
FOR INSTITUTIONAL USE ONLY - NOT FOR PUBLIC DISTRIBUTION
Peter Gailliot, Global CIO of the Financial Institutions Group (FIG) and Head of Fixed Income FIG Portfolio Management, BlackRock
Steve Laipply, U.S. Head of iShares Fixed Income ETFs, BlackRock
Jean LaTorre, Executive Vice President and CIO, The Guardian Life Insurance Company of America (moderator)
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Peter Gailliot, Managing Director, is the Global CIO of the Financial Institutions Group (FIG) and Head of Fixed Income FIG Portfolio Management. He is responsible for portfolio performance, strategic positioning, and customized solution creation across the full FIG platform at BlackRock.Prior to his current role, Mr. Gailliot was Head of US Fixed Income for FIG within BlackRock's Global Fixed Income team. In this role he was responsible for setting the group's Multi-Sector Total Return strategies, as well as managing client portfolios as a Senior Portfolio Manager. Mr. Gailliot joined BlackRock in 2004 in the Institutional Client Business Group, and was responsible for developing and maintaining relationships with insurance and other taxable clients.Mr. Gailliot began his career in 2002 as an Internal Wholesaler on the AXA Distributors Annuity Sales Desk at AXA Financial.Mr. Gailliot earned a BA degree in economics from Duke University in 2002.
Stephen Laipply, Managing Director, is the U.S. Head of iShares Fixed Income ETFs for BlackRock. His cross-functional team is responsible for supporting client engagement for both institutional and wealth investors, creating thought leadership on fixed income markets and fixed income ETFs, driving new product innovations, and partnering with fixed income broker/dealers. Mr. Laipply is also a member of BlackRock's Investment Strategies and Insights team and has authored and co-authored articles on fixed income markets and investing that have been published in the Journal of Portfolio Management, the Journal of Index Investing, and the Journal of Trading. Previously, Mr. Laipply was the Head of U.S. iShares Fixed Income Strategy and was a member of BlackRock's Systematic Fixed Income Product Strategy Team. Prior to joining BlackRock in 2009, Mr. Laipply was a senior member of the Interest Rate Structuring and Strategic Solutions groups at Bank of America Merrill Lynch where he helped to develop investment and risk management solutions for institutional clients across interest rate, credit and securitized exposures.Mr. Laipply earned a BS degree in finance from Miami University, and an MBA in finance from the Wharton School of the University of Pennsylvania.
Jean LaTorre is executive vice president and chief investment officer for Guardian, Park Avenue Institutional Advisers, and other Guardian subsidiaries. She is responsible for managing investment policy and strategy in public and private equity, fixed income, and commercial real estate. Jean joined Guardian in 2020 after nearly 30 years at Aetna, where she was most recently chief investment officer and corporate economist overseeing the management of over $40 billion in diversified assets. Additionally, chaired Aetna Capital Management, the company’s fully owned hedge fund. Prior to Aetna she worked at the Municipal Bond Insurance Association and Donaldson, Lufkin & Jenrette. Jean has 37 years of investment experience. Jean, a Chartered Financial Analyst (CFA), holds a B.S. business administration and English from the State University of New York at Albany and an M.B.A. from New York University’s Stern School of Business.
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Market outlook through fixed income lensPeter Gailliot, Global CIO of the Financial Institutions Group (FIG) and Head of Fixed Income FIG Portfolio Management, BlackRock
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US Labor Market Recovery
6
US Unemployment
0
5
10
15
20
25
%
US U-3 U.E. Rate US U-6 U.E. Rate
Source, both charts: Bloomberg. Data as Sept. 8, 2020
US Labor Force Participation
56
58
60
62
64
66
68
%
US Labor Force Participation Rate
Views and data contained in the presentation reflected are of the global financial institutions group as of September 9, 2020 unless otherwise noted.
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Economic Recovery
7
0% 5% 10% 15% 20% 25%
U.S
.E
uro
are
a*
Jap
an
UK
Impact on GDP
Estimated virus hit to GDP vs. offsetting policy measures, 2020
* The euro area is represented by averages of Germany, France, Italy and Spain. Sources: BlackRock Investment Institute, with data from the Federal Reserve, ECB, BOJ, BOE and Haver Analytics, July 2020. Notes: The chart shows the magnitude of the negative shock (red) and the associated positive policy response (yellow) as percentages of GDP. We use estimated 2020 targets for the U.S. and euro area central bank purchases and lending programs. The euro area includes the ECB’s Targeted Longer-Term Refinancing Operations, and the UK includes central bank support for the Term Funding Scheme.
n Initial impactn Spillovers to the full economy
n Fiscal measures n Central bank private sector lending
Global Services PMI
Source: Refinitiv Datastream, BlackRock. Data as Sept. 7, 2020.
10
20
30
40
50
60
Au
g-1
0
Au
g-1
1
Au
g-1
2
Au
g-1
3
Au
g-1
4
Au
g-1
5
Au
g-1
6
Au
g-1
7
Au
g-1
8
Au
g-1
9
Au
g-2
0
Ind
ex
Le
ve
l
China US Eurozone UK World
10
20
30
40
50
60
Au
g-1
0
Au
g-1
1
Au
g-1
2
Au
g-1
3
Au
g-1
4
Au
g-1
5
Au
g-1
6
Au
g-1
7
Au
g-1
8
Au
g-1
9
Au
g-2
0
Ind
ex
Le
ve
l
China US Eurozone UK
Global Manufacturing PMI
Source: Refinitiv Datastream, BlackRock. Data as Sept. 7, 2020.
Views and data contained in the presentation reflected are of the global financial institutions group as of September 9, 2020 unless otherwise noted.
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Market Recovery
8
US Large Cap Equities
0
10
20
30
40
50
60
70
80
90
0
500
1000
1500
2000
2500
3000
3500
4000
Ind
ex
Le
ve
lInd
ex
Le
ve
l
S&P 500 VIX (rhs)
S&P 500 and VIX
Source: Bloomberg, as of Sept. 8, 2020.
Bloomberg Barclays Indices
Source: Bloomberg, Barclays, as of Sept. 8, 2020. Spread sectors are derived from the Bloomberg Barclays Aggregate Index.
0
50
100
150
200
250
300
350
400
31-Dec 31-Jan 29-Feb 31-Mar 30-Apr 31-May 30-Jun 31-Jul 31-Aug
bp
s
ABS CMBS Agency MBS Corporates
Fixed Income Spread Sector OAS
Views and data contained in the presentation reflected are of the global financial institutions group as of September 9, 2020 unless otherwise noted.
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Technicals in the Market
9
Negative Yielding Debt
Source: Bloomberg, ICI, BlackRock. Data as of Sept. 8, 2020
Note: Equity and Bond data is cumulative weekly flows into the ICI Long-term categories for US domiciled mutual funds and ETFs. Cash is the weekly change in ICI reported total assets for US money market funds.
Source: Bloomberg. Data as of Sept. 8, 2020
Note: Time series shows the market value of bonds having a negative yield in the Bloomberg Barclays Global Aggregate index
Cumulative Fund Flows
(500)
-
500
1,000
1,500
2,000
US
$ b
illi
on
s
Equities Bonds Cash
0
2
4
6
8
10
12
14
16
18
US
$ b
illi
on
s
Negative Yielding Debt
Views and data contained in the presentation reflected are of the global financial institutions group as of September 9, 2020 unless otherwise noted.
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Modernization of the bond marketSteve Laipply, U.S. Head of iShares Fixed Income ETFs, BlackRock
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An eruption of market volatility in early 2020 touched nearly every corner of the fixed income markets – and marked a turning point for the adoption of fixed income ETFs.
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12LIMITED DISTRIBUTIONFor illustrative purposes only.
The Modernization of the Bond Market
Broker-Dealer
Bond Inventory
Investor
Investor
Investor
Direct CallsExchange
Electronic Venues
Broker-Dealer
InvestorInvestor
ETF Market Makers
Central risk inventory
• ETF primary activity • Index derivatives to hedge
• Price custom baskets • Inventory management
Central risk inventory
• ETF primary activity • Index derivatives to hedge
• Price custom baskets • Inventory management
Market structure pre-2008 Current Market Structure
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Record $1.3T in volumes in the 1st
quarter of 2020
For illustrative purposes only.Source: Bloomberg, daily volume as of March 31, 2020
There can be no assurance that an active trading market for shares of an ETF will develop or be maintained. Case study shown for illustrative purposes only. This is not meant as a guarantee of any future result or experience. This information should not be relied upon as research, investment advice or a recommendation regarding the iShares funds or any security in particular.
Total FI ETF Industry
iShares FI ETFs
$0
$250
$500
$750
Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Total monthly trading volume ($B)
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As bond market liquidity deteriorated, fixed income ETF trading surged
For illustrative purposes only.
Source: Bloomberg, TRACE as of May 31, 2020
High yield corporate fixed income ETF volume increased to a record
relative to individual high yield bond volume (20-day average)
Investment grade corporate fixed income ETF volume increased to
a record relative to individual investment grade bond volume (20-
day average)
0
50
100
150
200
250
300
350
400
0%
5%
10%
15%
20%
25%
30%
2014 2015 2016 2017 2018 2019
IG ETF % to IG Bond Volume (LHS) IG Index OAS (RHS)
-
200
400
600
800
1,000
1,200
0%
5%
10%
15%
20%
25%
30%
35%
2015 2016 2017 2018 2019 2020
HY ETF % to HY Bond Volume (LHS) HY Index OAS (RHS)
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Evolved portfolio construction
This information should not be relied upon as research, investment advice or a recommendation regarding the Funds or any security in particular. This information is strictly for illustrative and educational purposes and is subject to change. This information does not represent the actual current, past or future holdings or portfolio of any BlackRock client.
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CoreExposure
TacticalTilts
Cash bonds
Derivative ETF/Index
High conviction
Fixed income ETFs as a building block in core allocation.
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For use with financial intermediaries and institutional investors only -proprietary & confidential not for public distribution
FOR INSTITUTIONAL USE ONLY - NOT FOR PUBLIC DISTRIBUTION
FOR INSTITUTIONAL USE ONLY - NOT FOR PUBLIC DISTRIBUTION
We have long used fixed income ETFs for tactical positioning, hedging, and liquidity management. During this recent crisis, fixed income ETFs enhanced our ability to navigate these challenging markets.
Rick Rieder, BlackRock’s Chief Investment Officerof Global Fixed Income
“
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Q&A
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Appendix
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This document contains general information only and does not take into account an individual’s financial circumstances. An assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a professional adviser before making an investment decision.
This material is provided for educational purposes only and is not intended to be relied upon as a forecast, research or investment advice, andis not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
Manager OpinionThe opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by BlackRock, Inc. and/or its subsidiaries (together, “BlackRock”) to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. There is no guarantee that any forecasts made will come to pass. Any investments named within this material may not necessarily be held in any accounts managed by BlackRock. Reliance upon information in this material is at the sole discretion of the reader. The issuers referenced are examples of issuers BlackRock considers to be well known and that may fall into the stated sectors. BlackRock may or may not own any securities of the issuers referenced and, if such securities are owned, no representation is being made that such securities will continue to be held
OutlookStatements concerning financial market trends are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions. Outlook and strategies are subject to change without notice.This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. There is no guarantee that any forecasts made will come to pass.
IndexIt is not possible to directly invest in an unmanaged index.
The credit quality of a particular security or group of securities may be determined either by BlackRock or a nationally recognized statistical rating organization and does not ensure the stability or safety of an overall portfolio. In the event a security is unrated by a ratings organization, BlackRock may assign an internal rating for purposes of determining credit quality. Past performance is not indicative of future results.
Important notes
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RiskInvesting in the bond market is subject to certain risks including market, interest-rate, issuer, credit, and inflation risk. Equities may decline in value due to bothreal and perceived general market, economic, and industry conditions. Mortgage and asset-backed securities may be sensitive to changes in interest rates,subject to early repayment risk, and while generally backed by a government, government-agency or private guarantor there is no assurance that the guarantorwill meet its obligations. High-yield, lower-rated, securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject togreater levels of credit and liquidity risk than portfolios that do not. Investors will, at times, incur a tax liability. Income from municipal bonds may be subject tostate and local taxes and at times the alternative minimum tax. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit,management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested.
BlackRock makes no representations or warranties as to the accuracy or completeness of the information contained herein, and further nothing containedherein shall be relied upon as a promise by, or representation by, BlackRock whether as to past or future performance results. Past performance is notindicative or predictive of future performance.
These materials are being provided for informational purposes only and are not intended to constitute tax, legal or accounting advice. You should consult yourown advisers on such matters. Additional information is available on request. Information contained herein is believed to be reliable but BlackRock does notwarrant its accuracy or completeness. Information contained herein represents BlackRock’s own opinions. There can be no assurance that the investmentobjectives of any strategy referred to herein will be achieved. An investment in any strategy referred to herein involves a high degree of risk, including the riskthat the entire amount invested may be lost.
THIS MATERIAL IS HIGHLY CONFIDENTIAL AND IS NOT TO BE REPRODUCED OR DISTRIBUTED TO PERSONS OTHER THAN THE RECIPIENT.
© 2020 BlackRock, Inc. All rights reserved. ALADDIN, BLACKROCK, BLACKROCK SOLUTIONS, and iSHARES are registered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are the property of their respective owners.
Important notes
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Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.iShares.com orwww.blackrock.com. Read the prospectus carefully before investing.
Investing involves risk, including possible loss of principal.
Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities.
Shares of iShares ETFs may be bought and sold throughout the day on the exchange through any brokerage account. Shares are not individually redeemable from the ETF, however, shares may be redeemed directly from an ETF by Authorized Participants, in very large creation/redemption units.
There can be no assurance that an active trading market for shares of an ETF will develop or be maintained.
This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change. There is no guarantee that any strategies discussed will be effective.
Prepared by BlackRock Investments, LLC, member FINRA.
The Investment Company Act of 1940 restricts the ability of foreign investment companies to invest in registered investment companies in excess of certain limits.
©2020 BlackRock, Inc. All rights reserved. iSHARES and BLACKROCK are trademarks of BlackRock, Inc., or its subsidiaries in the United States or elsewhere. All other marks are the property of their respective owners.
Important information regarding iShares ETFs
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