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MONTHLY MARKET COMMENTS
  • The month of October brought with it continued volatility in the Treasury rates market as the 10 year yield fluctuated within an approximate 45 bps range during the month and ended the month at 4.93%. Despite the material movements, the primary theme was a steeper curve as the long end rose more than the short end with the long end up nearly 40 bps. Economic news during the month included a headline Q3 GDP print of 4.9% as the underlying components hinted to slower Q4 growth while core PCE was below estimates at 2.4%. As expected by most market participants, the FOMC did not change the policy rate on November 1st due, at least in part, to the fact that the recent rise in long-end yields has led to a tightening in financial conditions.

  • Corporate spreads experienced a bout of widening during October as spreads increased approximately 8 bps to 128 bps while total returns were 1.87% for the Bloomberg US Investment Grade Corporate Index and excess returns to Treasurys were 0.34%. Excess returns deteriorated as you stepped down the quality spectrum and financials underperformed versus industrials. Corporate fundamental metrics continue to marginally weaken, but we do not view levels as overly concerning yet. Credit losses remain subdued and our outlook is for a stable loss trend in the near term, but we think current spreads are not overly attractive when compared to historical levels.

  • Within the municipal sector, muni yields in the middle of the curve tracked Treasury yields higher, but rose faster than Treasurys at the short end and trailed Treasurys at the long end of the curve. Hence, municipal/Treasury ratios modestly improved at the short end but contracted on the long end. The current municipal market is unusually defined by tension between competing forces: rate-related valuations have improved on the short end while spread valuations have been tightening. Additionally, new issue demand continued to be strong while selling activity was elevated due largely to fund liquidations and tax-loss harvesting activities.

 

As of 31 October 2023.

 

This marketing communication is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. Investment recommendations may be inconsistent with these opinions. There is no assurance that developments will transpire as forecasted and actual results will be different. Information, including that obtained from outside sources, is believed to be correct, but we cannot guarantee its accuracy. This information is subject to change at any time without notice.

This material is not intended to provide tax, legal, insurance, or investment advice. Please seek appropriate professional expertise for your needs.

Indices are unmanaged and do not incur fees. It is not possible to invest directly in an index.

Commodity, interest and derivative trading involves substantial risk of loss.

Any investment that has the possibility for profits also has the possibility of losses, including the loss of principal.

Markets are extremely fluid and change frequently.

Past performance is no guarantee of, and not necessarily indicative of, future results.

MALR032102

Yield
Model TypeDuration Types
Full Intermediate
Conservative 6.25 5.87
Moderate 6.67 6.47
Enhanced 6.92 6.76
Municipal 4.41 4.27
Conservative Hybrid 5.28 4.87
Moderate Hybrid 5.51 5.26
Enhanced Hybrid 5.64 5.51
TAX-ADJUSTED YIELD
Model TypeDuration Types
Full Intermediate
Conservative 3.7 3.48
Moderate 3.95 3.83
Enhanced 4.1 4
Municipal 4.41 4.27
Conservative Hybrid 4.2 3.88
Moderate Hybrid 4.39 4.19
Enhanced Hybrid 4.49 4.39
OPTION-ADJUSTED DURATION
Model TypeDuration Types
Full Intermediate
Conservative 6.47 3.87
Moderate 6.03 4.87
Enhanced 5.78 4.23
Municipal 5.09 4.56
Conservative Hybrid 5.9 4.88
Moderate Hybrid 5.69 4.83
Enhanced Hybrid 5.56 4.35
AVERAGE QUALITY
Model TypeDuration Types
Full Intermediate
Conservative 20 20
Moderate 20 20
Enhanced 20 20
Municipal 22 22
Conservative Hybrid 21 22
Moderate Hybrid 21 21
Enhanced Hybrid 21 21
% IN EMERGING MARKETS
Model TypeDuration Types
Full Intermediate
Conservative 0 0
Moderate 0.08 0.08
Enhanced 0.13 0.11
Municipal 0 0
Conservative Hybrid 0 0
Moderate Hybrid 0.04 0.04
Enhanced Hybrid 0.06 0.06
% IN HIGH YIELD
Model TypeDuration Types
Full Intermediate
Conservative 0 0
Moderate 0.04 0.08
Enhanced 0.08 0.1
Municipal 0 0
Conservative Hybrid 0 0
Moderate Hybrid 0.02 0.04
Enhanced Hybrid 0.04 0.04
% IN Securitized
Model TypeDuration Types
Full Intermediate
Conservative 0.16 0.15
Moderate 0.14 0.11
Enhanced 0.2 0.2
Municipal 0 0
Conservative Hybrid 0.08 0.08
Moderate Hybrid 0.07 0.06
Enhanced Hybrid 0.1 0.1

*The tax-adjusted yield is calculated using an effective tax rate of 40.8% which includes the 37.0% top federal marginal income tax rate and a 3.8% Net Investment Income Tax to fund Medicare.

Source: Loomis Sayles.

The universe for analysis is typically the broadest opportunity set the respective team invests in, for example, include the Bloomberg US Aggregate Index, and potential indicative yields may assume investments outside of these indices. Conservative portfolios will typically invest in Treasurys, corporates, securitized, and allow up to 5% in emerging markets debt, per client guidelines. Moderate portfolios will typically invest in Treasurys, corporates, securitized, and allow up to 10% in emerging markets debt and 5% in high yield  per client guidelines. Enhanced portfolios will typically invest in Treasurys, corporates, securitized, and allow up to 15% in emerging markets debt and 10% in high yield  per client guidelines.

The sample characteristics and allocations do not represent an actual portfolio managed by Loomis Sayles or any investment recommendation. There is no assurance Loomis Sayles would be able to construct a portfolio with the characteristics or allocations shown. All data is based on current market conditions. These proposed sample characteristics do not take into account the size of the investment or the availability of any securities for purchase. This information is subject to change at any time without notice.

Hybrid models contain a mix of taxable securities and tax-exempt municipal bonds.

This material is not intended to provide tax, legal, insurance, or investment advice. Please seek appropriate professional expertise for your needs.

There is no guarantee that the investment objective will be realized or that the strategy will generate positive or excess return. 

Past performance is no guarantee of future results.

Investment Outlook

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