Life After Zero: Reassessing the Role of Sovereign Bonds with Negative Nominal Yields

Nominal high-quality sovereign bond yields throughout developed markets have plummeted toward zero, increasing the likelihood that most developed markets may soon need to contend with negative yields, and leading investors to question whether high-quality sovereign bonds are still the best form of insurance. In light of these developments, we examine the historical safe-haven characteristics of high-quality sovereign bonds and assesses whether they remain a viable safe-haven asset.

April 2020

Credit Spreads Take Pensions for a Wild Ride

As the COVID-19 outbreak has escalated in the United States, sponsors of single employer–defined benefit pension plans have experienced a roller coaster ride. Avoiding, or at least cushioning, another wild ride requires a well-designed hedging strategy that accounts for credit spreads. We provide context for this rapidly evolving spread environment and potential responses.

April 2020

Rate Cuts Are No Vaccine

March 16, 2020— The Federal Reserve Bank has announced a host of emergency measures intended to improve bond market liquidity and reduce borrowing costs, which come in response to rising signs of dislocation across Treasury, municipal, and corporate bond markets.

March 2020

Treasury Bond Yields Plunge to Historic Lows

March 9, 2020—Yields on ten-year Treasuries dropped below 50 basis points (bps) today for the first time in history as COVID-19 fears spread. While we cannot rule out a recession, given the uncertainties associated with the virus and its impact on economic activity, we believe today’s low yields are less about long-term growth forecasts and more about expectations of further Federal Reserve easing, risk aversion, and liquidity preferences.

March 2020

Should Corporate Plan Sponsors Continue to Hedge Liability Interest Rate Risk?

Yes, maintaining a well-hedged pension plan is prudent risk management.

September 2019

Whistling Past the Covenant-Lite Graveyard: A Sanity Check in Practical and Philosophical Terms

The recent shift in common wisdom with respect to covenant-lite loans hearkens the warning to be careful of changing opinions in the face of unchanging facts and steadfast opinions. Many general partners bemoan the incidence of covenant-lite loans, but others do not. Some market participants have come to support covenant-lite loans. Their opinions appear to […]

August 2019

What to Expect From Your Direct Lenders When the Cycle Turns

Direct lending, or senior debt, funds have come to dominate the private credit asset class, capturing significant portfolio allocations and outpacing fundraising of other private credit strategies. However, over the past 18 months, Cambridge Associates has felt enthusiasm for senior debt allocations cool as discussions turn to senior debt funds’ performance through the credit cycle.

July 2019

The US Yield Curve Inverted! Should Investors Underweight Risk?

Although an inverted yield curve is not a sign we welcome, it also is not a clear indicator of an imminent equity market downturn. Instead of underweighting risky assets, we suggest investors take this opportunity to refresh plans to manage through the next bear market.

April 2019