Sr. Client Portfolio Manager

Sr. Client Portfolio Manager

Global Bond Market Brief

March 2020 Notes from the Global Fixed Income Desk

Our Global OutlookAs the coronavirus outbreak originating in Wuhan, China, spread across the world, investors responded with a global flight to quality. U.S. Treasury yields fell to new lows in the risk-off climate. These events highlight the importance of professional, active management during periods of heightened volatility.

Economy. U.S. economic data, including figures on wages, personal income, employment and manufacturing, were positive and generally stronger than economic data in other developed markets. Uncertainty surrounding the virus’s impact on global growth likely will lead to a global slowdown in coming months.

Rates. The Fed remained on hold in February, but with the expanding coronavirus outbreak threatening growth, policymakers made a surprise 50 bps rate cut in early March. Other central banks also adopted stimulus measures in March.

Inflation. Rising year-over-year energy prices drove headline CPI to 2.5% in January (data released in February). But the personal consumption expenditures price index remained below the Fed’s 2% target. Inflation in the U.S. remains higher than in other developed markets. We see downside risks to global inflation in the months ahead.

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Rich Taylor

Joyce Huang, CFA

Current Sector Views Underweight Overweight

U.S. Credit Remain on the more defensive side as we anticipate market volatility to continue but look to add selectively in areas that are less correlated to oil.

• Technology• Food & Beverage• Diversified

Manufacturing

• Banks• Telecom• Utilities

U.S. Securitized

An accommodative Fed and low rates should continue to support the sector, but the recent rapid decline in rates caused the sector to lag slightly due to negative convexity.

• Agency MBS • ABS• Non-Agency

CMBS

European Credit

Weak regional economic outlook and global trade uncertainty are diminishing the effectiveness of QE on risk assets. Fair valuations combined with negative yields.

• Industrials • Financials

EM Sovereign

Dovish central bank policy in developed markets should be a tailwind for EM assets. EM fundamentals remain stable for now but are at risk of a global growth slowdown due to the coronavirus pandemic

External CDS• Colombia• Qatar• South Africa

Local• South Africa• Mexico• IndonesiaExternal• Egypt• Turkey• Jordan

EM Corporate

Reduced high-yield exposure to take profits on trades. Spread per turn of net leverage still higher than developed markets corporates of the same rating.

• Metals & Mining• Real Estate

• TMT

Views as of 2/29/2020. The opinions expressed are those of American Century Investments (or the fund manager) and are no guarantee of the future performance of any American Century Investments fund. This information is for educational purposes only and is not intended as investment advice.

Positive NegativeNeutral Selective

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Yields and SpreadsGovernment bond yields in developed markets declined in February. In the U.S., Treasury yields hit record lows, and in Europe and Japan, yields slipped further into negative territory.

The rally among government bonds helped push corporate spreads wider. Given the magnitude of the rally and the risk-off sentiment, U.S. and European spreads held up relatively well. However, high-yield credit spreads widened dramatically to exceed their five- and 10-year averages. Similarly, emerging markets (EM) spreads widened beyond their longer-term averages.

Muni yields tracked Treasury yields lower, and ratios between munis and Treasuries increased slightly. Favorable supply/demand trends, supportive fiscal and credit conditions and risk-off investing supported munis. Returns were positive, but munis generally underperformed Treasuries.

Yield CurvesGlobal Yields. The global flight to quality drove government bond yields in non-U.S. developed markets lower in February. Portions of the yield curves in the European Union, U.K. and Japan remained inverted. In the European Union, yields across the curve were negative. All but the longest-maturity yields in Japan remained negative.

U.S. Yields. Government bond yields in the U.S. ended the month sharply lower. Despite generally upbeat economic data, yields declined on global growth fears and expectations for Fed easing. Much of the U.S. curve remained inverted, as the 10-year Treasury yield plunged to a record-low 1.15%. The 30-year Treasury bond yield also fell to a record low

Data as of 2/29/2020. Source: FactSet, Bloomberg.

Change AverageTreasury Yields (bps) 1 Mo. 3 Mos. 1 Yr 5 Yr 10 YrU.S. 92 -40 -70 -160 151 96E.U. -78 -10 -14 -25 -58 -9Japan -26 -10 -8 -10 -15 -2U.K. 31 -19 -23 -51 49 55U.S. 115 -36 -63 -157 226 236E.U. -61 -17 -25 -79 23 106Japan -16 -9 -8 -13 5 45U.K. 44 -8 -26 -86 127 1922's - 10's Spread 24 4 7 3 75 13910 Year TIPS -28 -15 -44 -105 46 3710 Year Breakeven Infl Rate 143 -21 -20 -51 180 199Credit Spreads (bps)US Investment Grade 117 19 17 3 119 131US High Yield 500 110 130 121 434 477Euro Investment Grade 114 19 12 -16 114 141EMD Sovereign ($) 212 37 34 34 206 201EMD Corporate ($) 358 37 25 41 338 340Municipal Data10-Yr Muni/Treasury Ratio (%) 85 7 1 6 89 9430-Yr Muni/Treasury Ratio (%) 93 1 -4 -7 100 103AAA vs BAA Spread (bps) 70 -14 -21 -50 126 184

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Data as of 2/29/2020; numbers are rounded.Source: FactSet, Bloomberg.

Inflation TrendsGlobal inflation. After hitting a nine-month high in January, annual headline inflation in the eurozone dropped to 1.2% in February, and policymakers expect inflation to remain below their 2.0% target through at least 2022. Meanwhile, year-over-year inflation in the U.K. jumped to a six-month high of 1.8% in January. The annual inflation rate in Japan remained weak, falling to 0.7% in January.

U.S. Inflation. Headline inflation rose to a 2.5% annual rate in January, largely due to sharp year-over-year gains in gasoline and other energy sector components. Annual core CPI held at 2.3%. The personal consumption expenditures price index increased to 1.7% year over year, still below the Fed’s 2.0% target. Meanwhile, longer-term inflation expectations (the 10-year inflation breakeven rate) plunged 21 bps late in the month to their lowest level since 2016.

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Central Bank OutlookGlobal Central Banks. Central banks in Europe, the U.K. and Japan left their monetary policy strategies unchanged in February. However, the Bank of England cut rates 50 bps in early March, and the European Central Bank launched a new bank loan program and boosted its bond-buying. The central bank in China, the epicenter of the outbreak, lowered its key lending rates in February to help combat the virus’s economic effects.

The Fed. The Fed left its target short-term lending rate unchanged in February. But, in a reversal from previous plans to keep rates on hold in 2020, policymakers indicated rate cuts weren’t off the table. Fed officials noted they would cut rates, if necessary, to support the U.S. economy in the wake of coronavirus-related weakness. In early March, the Fed did just that, cutting rates by a surprising 50 bps. After that, the futures market placed a 100% probability of the Fed cutting again at its March 18 monetary policy meeting.

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Past performance is no guarantee of future results.The opinions expressed are those of the portfolio team and are no guarantee of the future performance of any American CenturyInvestments portfolio. This information is for an educational purpose only and is not intended to serve as investment advice.References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.This information is not intended as a personalized recommendation or fiduciary advice and should not be relied upon for investment, accounting, legal or tax advice.

No offer of any security is made hereby. This material is provided for informational purposes only and does not constitute a recommendation of any investment strategy or product described herein. This material is directed to professional/institutional clients only and should not be relied upon by retail investors or the public. The content of this document has not been reviewedby any regulatory authority.

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Total Return SummaryTreasuries were strong. Concerns about slowing global growth sparked safe-haven investing, and the U.S. Treasury sector was a top performer. Declining Treasury and global government bond yields helped support gains in higher-quality fixed-income sectors.

Risky sectors struggled. The month’s flight to quality weighed on returns among riskier bonds, including high-yield corporates and EM corporate and sovereign securities. High-yield munis were an exception, benefiting from favorable supply/demand, yield and tax characteristics.

Dollar increased. The risk-off climate continued to favor safe-haven currencies, including the U.S. dollar. The dollar’s strength reduced returns for unhedged global bonds and local-currency EM bonds. Data as of 1/31/2020. Source: FactSet.

1 Mo. 3 Mos. YTD 1 YearBmbg Barclays US Treasury 2.65 4.57 5.16 12.15Bmbg Barclays US Aggregate 1.80 3.69 3.76 11.68Bmbg Barclays US TIPS (1-5 Yr) 0.58 1.90 1.11 5.29Bmbg Barclays US TIPS 1.38 3.91 3.51 10.76Bmbg Barclays US GNMA 0.90 1.53 1.39 6.52Bmbg Barclays US MBS 1.04 2.02 1.74 7.45Bmbg Barclays US Corporate Investment Grade 1.34 4.05 3.71 15.81Bmbg Barclays US High Yield Corporate -1.41 0.59 -1.38 6.10ICE 3-Month LIBOR 0.13 0.45 0.29 2.18S&P Intermediate Term National AMT-Free Municipal 0.94 2.81 2.47 7.75S&P Intermediate Term CA AMT-Free Municipal 0.82 2.55 2.22 7.26S&P National Municipal High Yield 1.90 4.51 3.92 13.44S&P CA Municipal 50% IG/ 50% HY 1.49 3.59 3.22 10.88Bmbg Barclays Global Agg (USD Hedged) 1.22 2.84 3.05 10.22Bmbg Barclays Global Agg ex USD (USD Unhedged) -0.20 1.65 0.55 4.83JPM CEMBI Broad Diversified -0.01 2.51 1.53 10.58JPM GBI-EM Global Diversified -3.41 -0.71 -4.65 3.73JPM EMBI Global Diversified -0.97 2.57 0.54 9.68U.S. Dollar Spot Index 0.27 -0.14 1.81 2.05

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