Key points
One advantage of having 50 years in the fixed income business is watching markets grow from their infancy. One such market is the global investment-grade (IG) universe.
When T. Rowe Price set up its fixed income division in 1971, bond investing was a home-biased business: the average US or European investor had little reason to venture beyond the government bonds of their home country. It would be nearly two decades before the Bloomberg Global Aggregate Index was launched.
By the time I started investing in 1991, this soon-to-become-key benchmark contained about 7,000 issuers. Today, there are more than 27,000 names in the global IG toolkit. Let's explore this growth, and draw some conclusions that could be relevant for future fixed income investing.
High yields in the 1970s and 80s
Towards the end of the 1970s, bond markets on both sides of the Atlantic deepened and broadened as interest rates became too high to ignore.
More than a decade of expansionary fiscal policy, with economic growth financed by government borrowing, together with the oil price shock of 1973/74 (which saw a 300% increase in oil prices) contributed to a surge in inflation. This resulted in a course correction by policymakers, and a move to monetarism as conceived by Milton Friedman: the idea that high interest rates were required to fight inflation.
The bond market took its cue from this change in economic policy orthodoxy, and bond yields soared: US Treasury yields topped 15% in 1981 and stayed high for the rest of the decade. Little did I realise, when I started my investing career, that we were in the early stages of a 30-year bull run.
This post was funded by T. Rowe Price
Important Information
For professional clients only. Not for further distribution.
This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.
It is not intended for distribution to retail investors in any jurisdiction.
This material is issued and approved by T. Rowe Price International Ltd, 60 Queen Victoria Street, London, EC4N 4TZ which is authorised and regulated by the UK Financial Conduct Authority. For Professional Clients only.
© 2022 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.
